The Federal Reserve's meeting this week could have a big impact on your finances. The Fed's actions affect everything from how fast your savings grow to how much you pay on outstanding debt, so it's essential to make the right moves before the Fed announces its next rate decision on Dec. 18.
Here are four things you can do today to optimize your money ahead of the Fed's upcoming decision.
Make these 4 money moves before the Fed's next meeting
Make the most of the Fed's anticipated rate cut by doing these things now.
✅ Open a certificate of deposit
When the Fed cuts rates, deposit account rates tend to fall, too. That means you'll earn less with accounts like savings accounts and certificates of deposit. You can lock in today's high rates by opening a CD now.
"When interest rates are reducing, CD interest rates will follow suit," said Krisstin Petersmarck, investment advisor representative at New Horizon Retirement Solutions. "So investing in a CD now makes sense."
CDs are unique deposit accounts that come in terms typically ranging from a few months to several years. You'll need to leave your money in the CD for the entire term to avoid potential early withdrawal penalties. In exchange, the bank or credit union will pay you a fixed return for the entire term based on the interest rate in effect when you open the CD. Some of today's best CDs offer annual percentage yields, or APYs, up to 4.70%.
Right now is "very likely the last opportunity you have to lock in peak rates this interest rate cycle," said Matt Willer, managing director of capital markets at Phoenix Capital Group Holdings.
✅ Open a high-yield savings account
A CD is a great home for money you won't need to touch for some time. What about your emergency savings? You want to keep these funds liquid while still earning the most interest you can on them.
A high-yield savings account can help. Often provided by online banks, high-yield savings accounts offer significantly better returns than the traditional savings options available at major banks. For example, today's top savings accounts pay at least 10 times the national average savings rate.
It's usually easy to access your funds in a high-yield savings account, although there may be withdrawal limits to mind. For example, you may pay a fee if you withdraw money from your account more than six times in any given month.
Interest rates on high-yield savings accounts are variable, which means they tend to fall when the Fed cuts the federal funds rate. So you'll want to open a high-yield savings account ASAP to take advantage of today's great APYs while you still can.
✅ Hold off on big purchases
If you're thinking about financing a new car or other large purchase, consider waiting.
Some loan types may be faster to adjust to changes in the federal funds rate than others. "Auto loans and home equity loans will adjust rather quickly after the Fed rate changes," explained Kelly Gilbert, owner of EFG Financial. On the other hand, "mortgage rates follow T-bill rates, and those change a lot slower than an auto loan or home equity loan rate."
Gilbert says if you're in the market for a new home, you may want to "investigate a variable rate before you decide." Variable-rate mortgages often have a lower initial rate than fixed-rate mortgages, although the rate could go up after the introductory period, so take this into account when deciding.
✅ Pay down debt
Debt -- especially high-interest debt -- can significantly hamper your financial stability. When you spend a large amount of money on interest, that money is no longer free for savings, investments or even to cover daily expenses.
Paying down credit cards and other high-interest debt is a smart move in any rate environment, but with the Fed poised to cut rates soon, it may be a wise time to consider a debt consolidation loan to combine your outstanding debt at a lower interest rate.
Keep in mind that now is the time to start shopping, not necessarily the time to open a new debt consolidation loan. For now, search for a reputable lender you're interested in working with so that, when rates do start to fall, all you'll need to do is apply.
You can't control what the Fed does with interest rates, but you can take some smart steps to make the most of its decisions. Maximize your finances now, and you'll be poised to benefit from the Fed's next decision, whatever it may be.
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