At Extreme Investor Network, we understand the importance of making smart financial decisions, especially when it comes to interest rate changes. With the Federal Reserve hinting at upcoming rate cuts, it’s vital to take a closer look at how this could impact your cash and investments.
Experts suggest that now is a good time to consider shifting cash due to the potential rate cut. Traders are anticipating a rate cut in September, which could lower the target range for the federal funds rate by a quarter percentage point or more. Many investors currently have significant cash allocations, including trillions in money market funds that are still paying above 5%.
However, with the expected rate cuts, money market fund yields are likely to fall. Ken Tumin, the founder and editor of DepositAccounts, explains that most money market funds closely follow the federal funds rate. This means that investors may see a decrease in returns if the Fed starts cutting rates in September.
It’s also essential to consider locking in CD rates before the Fed meeting next week. Banks often begin cutting rates for high-yield savings accounts and certificates of deposits in anticipation of rate cuts. As of July 25, the top 1% average rate for high-yield savings accounts was below 5%, while one-year CDs were around 5.5%.
For a longer-term investment strategy, some experts suggest shifting from money market funds to longer-duration bonds. Bonds typically see price appreciation as interest rates fall, potentially offering higher yields compared to money market funds. Financial advisor Ted Jenkin recommends exploring 9-month or one-year CDs to lock in rates while they are still favorable.
Ultimately, the best investment decisions depend on your specific goals, risk tolerance, and timeline. Stay tuned to Extreme Investor Network for more valuable insights and tips to help you make informed financial decisions.