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3 things to do (and 3 things to avoid) before interest rates are cut
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Inflation has been cooling and that’s a sign that the Federal Reserve could cut its federal funds rate soon. The Fed adjusts this benchmark rate in response to economic developments. And, many experts agree that a rate cut will happen at some point before the end of the year.
That’s important because changes to the federal funds rate are typically followed by changes to the interest rates financial institutions charge consumers for borrowing money and pay them for depositing it. If the Fed does cut its federal funds rate, you could earn less on deposits, but pay less on loans.
And, you should consider the prospect of a coming rate cut as you make financial decisions. We’ve outlined a few things you should do and a few you shouldn’t with a potential rate cut looming below.
Take advantage of today’s high CD rates here now.
3 things to do (and 3 things to avoid) before interest rates are cut
With a potential rate cut ahead, there are a few financial moves you should make now:
Open a CD
With rates expected to fall ahead, using a certificate of deposit (CD) to lock in today’s high returns may be an advantageous move. These are fixed-rate deposit accounts that guarantee the rate you lock in for the entire term.
Of course, you typically have to guarantee that you’ll keep the money in its account for the entire term, too. You may be penalized if you access your money before the account matures. Nonetheless, CDs give you a compelling way to lock in today’s high rates for anywhere from a few months to several years. And, that’s valuable with a potential rate cut looming.
Don’t wait for rates to fall. Lock in your CD returns now.
Choose a HELOC over a home equity loan
Do you plan on tapping into your home equity? Home equity loans and home equity lines of credit (HELOCs) are two common options to choose from. But with the prospect of a rate cut ahead, it may be best to choose the latter.
HELOCs typically come with variable rates while interest rates on home equity loans are usually fixed. And, with a potential rate cut ahead, opting for a variable rate over a fixed rate could offer meaningful long-run savings.
Limit your variable-rate savings exposure
Savings accounts offer more flexibility than CDs – making it possible to access your money when you need it. That’s important for your emergency savings. But, with an expected rate cut looming, you should limit your variable-rate savings exposure. Think about how much money you need in your emergency savings and consider locking in a strong fixed rate of return on the rest of your money with a CD.
“Aim to save enough to cover three to six months’ worth of expenses to cushion against unexpected financial setbacks,” explains Justin Stivers, financial advisor and founding attorney at Stivers Law, an estate planning and asset protection law firm. But, once you have that amount in a variable-rate deposit account, like a high-yield savings account, you should consider opening a CD with your remaining savings to lock in today’s rates.
3 things to avoid before interest rates are cut
Although there are a few things you should do with a potential rate cut head, there are also a few financial moves you should avoid, including:
Focusing on short-term CDs
When you open a CD, you can choose short-term or long-term options. Short-term options typically mature within a year while long-term options often take several years. With a potential rate cut ahead, and interest rates high at the moment, it may be best to lock in today’s high rates for multiple years rather than opting for short-term options.
Selling your gold holdings
The potential for a rate cut is tied to the fact that inflation has been cooling. And, since gold is a strong inflation hedge, you may be tempted to sell your gold investment. But, inflation isn’t the only reason you should have gold in your portfolio.
Gold is a safe haven – not just as it relates to inflation, but also against other market risks. Between the current geopolitical stage and the coming election, it’s a good idea to maintain a healthy exposure to safe havens. So, selling your gold holdings could be a mistake.
Lock in a fixed mortgage rate
If you’re in the market for a new home, you may be weighing your fixed and variable-rate options. But, with rates expected to come down ahead, an adjustable-rate mortgage (ARM) may be a better option than its fixed-rate counterpart. If you opt for an ARM you could benefit from future rate cuts more quickly versus having to refinance with a fixed-rate loan.
Learn more about your mortgage options today.
The bottom line
It’s important to adjust your financial plan when rate cuts are expected. Those cuts can impact your savings returns and the cost of borrowing money. But, you can protect your returns by opening a long-term CD with a fixed interest rate. Also, limit your variable-rate savings exposure. If you plan on borrowing money against your home equity, or buying a new home, consider variable rate options as they may produce savings later. And, don’t start selling your gold holdings just yet. They may provide valuable protection against market risks outside of inflation.
Writer Delia Ephron, famous for rom-coms like “You’ve Got Mail,” knows how to dream up a fairy-tale storyline. But Ephron’s Broadway debut later this month comes directly from the pages of her life.
Ephron has written about intimate things before, but now it is her own life that is on the stage for everyone to see. She said it was not easy, “because I am basically introverted.”
But she sure makes it look easy. When “Sunday Morning” first interviewed Ephron two-and-a-half years ago, she’d just finished a best-selling memoir, “Left on Tenth.” Now she’s turned that book into a play, telling her remarkable story of beating the odds. She said, “It’s the story of a woman who loses her beloved husband of 38 years, and a man from her past drops into her life and she falls madly in love. And then shortly afterwards I got diagnosed with a terrible disease, a fatal leukemia. And I survived.”
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That’s right: seven years ago, because of her blood cancer, Delia Ephron was given four months to live. She’d already lost her sister, Nora, and her husband, Jerry, to cancer. But she somehow found love again, and got married in the hospital while undergoing chemo (a wedding that Dr. LaPook, a friend of Ephron’s, recorded).
Five-time Tony Award-winner Susan Stroman is directing the play. “It’s about second chances, and love, and life, and being brave enough to take those second chances, ’cause most people aren’t,” she said.
Stroman and Ephron share something in common they wish they didn’t. “I sadly lost my husband to AML, to leukemia,” Stroman said. “So, when I started to read the play, I knew everything about what was going on. I didn’t have to research anything, ’cause I had lived it, too.”
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She said it is “tricky” to direct the play’s turns from humor, to tragedy, and back again. But it’s a trick Stroman mastered – as “Sunday Morning” watched, tagging along every step of the way, from the first meet-and-greet, to an early rehearsal, to the stage of the James Earl Jones Theatre.
Emmy Award-winner Julianna Margulies plays Ephron. “They’re saying it’s a rom-com, and it is,” Margulies said. “It’s romantic, and it’s funny, and it’s wonderful, but bring tissues, in case you need them.”
LaPook asked stage legend Peter Gallagher (who plays Peter Rutter, Ephron’s newfound love), “The play is about two people falling in love who are not in their 20s or 30s; they’re older than that. What’s the significance of that?”
“Well, you know, you’re closer to death!” Gallagher replied. “Everything is precious. And I think that’s another thing that the audience is going to recognize and feel.”
Asked about the play’s life lessons for the audience, Ephron said, “We plan our lives out as a young person: ‘Oh, I wanna get married. I wanna have children. I wanna have a career.’ You know, you make all these things. But then you don’t think, ‘Oh, what’s gonna happen to me after I’m 50? What life do I want then?’ It’s a much more open book. And this is about seizing those years and really creating something.”
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Story produced by Amiel Weisfogel. Editor: Remington Korper.
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An Israeli airstrike hit a mosque in central Gaza and Palestinian officials said at least 19 people were killed early Sunday. Israeli planes also lit up the skyline across the southern suburbs of Beirut, striking what the military said were Hezbollah targets.
The strike in Gaza hit a mosque where displaced people were sheltering near the main hospital in the central town of Deir al-Balah. Another four people were killed in a strike on a school sheltering displaced people near the town.
The Israeli military said both strikes targeted militants, without providing evidence.
An Associated Press journalist counted the bodies at the Al-Aqsa Martyrs Hospital morgue. Hospital records showed that the dead from the strike on the mosque were all men, while another man was wounded.
In Beirut, the strikes reportedly targeted a building near a road leading to Lebanon’s only international airport and another formerly used by the Hezbollah-run broadcaster Al-Manar.
Hussein Malla / AP
Israel and Hezbollah have traded fire across the Lebanon border almost daily since the day after Hamas’ cross-border attack on Oct. 7, 2023, which killed 1,200 Israelis and took 250 others hostage. Israel declared war on the Hamas militant group in the Gaza Strip in response. As the Israel-Hamas war reaches the one-year mark, nearly 42,000 Palestinians have been killed in the territory, and just over half the dead have been women and children, according to local health officials.
Nearly 2,000 people have been killed in Lebanon in the latest conflict, most of them since Sept. 23, according to the Lebanese Health Ministry.