Interest rates have dropped, which is excellent news if you’re applying for credit. But it’s not the best thing for your savings accounts. When savings rates are low, there are still things you can do to grow your nest egg. These five smart money moves can help you weather this period of low returns.
A Brief Background on Interest Rates
The interest rate your bank pays you for saving your money with them is partly influenced by the Fed Reserve and partly by internal marketing goals. When the Fed Reserve lowers interest rates, banks follow and reduce the interest rate they charge to customers, as well as what they pay you.
In response to COVID-19, the Feds cut the interest rate twice in March 2020, bringing it close to 0%. The Fed’s action trickled down to lower interest paid on savings accounts.
No one can predict when interest rates will rise. But, it’s essential to keep in mind that banks are competitive. Financial institutions want your business. Therefore, within the parameters of interest rates set by the Feds, you’ll find incentives to secure your business.
Here are five smart money moves to make when savings rates are low.
1. All banks are not the same.
According to current statistics, the average savings account interest rate is approximately 0.7 percent. Are you doing better than this? If so, you might want to stay put. If your savings account is earning less, it’s time to shop around.
- Check out different savings products, such as certificates of deposit.
- Investigate online banks. They tend to offer high-interest savings accounts. You’ll need to meet specific qualifications and requirements. Be sure they are FDIC-insured.
- Digital and fintech institutions such as Marcus by Goldman Sachs and CIT Bank guarantee CD yields for a year or less.
- Find banks that set rates for a set number of months. You’ll be protected from any further drops in the savings rate.
When savings rates are low, search out the best deals to make the most out of whatever you can save.
2. Take Advantage of all New Customer Offers
As part of the competition, many banks offer introductory packages to new customers. Some offer a signup bonus of $100, which you can immediately deposit into your savings account. Others have special deals if you conduct all your business online, sign up for direct deposits, or maintain a minimum balance.
3. Get Rid of Bank Fees
Most banks offer free checking and savings. If you’re paying fees, you might want to consider moving your accounts to a new bank.
If you prefer to stay, try to meet your bank’s requirements for free maintenance, such as keeping the minimum balance required and switching to automatic deposits. Be careful of overdrafts. Download an app that alerts you when the balance in your account is getting low.
4. Stick to Your Savings Goals
Savings rates are low, but this should not deter you from your financial goals. Whether the rates are up or down, you still need to save for emergencies, retirement, big purchases, and life dreams. Now is the time to prioritize your goals.
- What’s most important right now?
- Do you need to start an emergency fund or build it up?
- Are you behind in your retirement savings goals?
- Have you reduced credit card debt?
As you find ways to save money, funnel it into your priorities.
5. Prepare to Invest
Once your emergency savings account is sufficient, you’ve tackled your credit card debt and maxed out your retirement accounts, start investing. It is one of the smartest money moves to make when savings rates are low. If you focus on low-risk investments, with an eye toward long-term, steady gains, you’ll reap much better returns than you will from any bank.
Savings rates may be low right now, but that’s not the end of the story. Banks want your business. Stay focused on your financial goals and use your power as a consumer.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.