3 tips for saving when interest rates go down

03rd May, 2021

Interest rates have declined. Two emergency cuts were made in March by the Federal Response as a result of the pandemic. Consequently, federal funds rate moved to a target range of 0 percent to 0.25 percent. The returns on certificates of deposit (CD) and savings accounts, which majorly follow the Fed’s actions, have also been on a steady decline since then. Now, how can you save when interest rates on saving accounts are on a constant decline? Let us find out.
1. Look around
Getting a specific interest rate is pivotal if you want to cater to a particular savings goal. To ensure that you earn as much interest as possible, you can consider comparison shopping, as it can fetch you good deals. Also, watch out for schemes, such as interest rate parity or interest rate swap.

An interest rate parity is an agreement, which says that if you invest in certain currencies, the hedged returns will be the same, irrespective of the rate of interest. On the other hand, in an interest rate swap, a basic rate is set, and the two parties agree to swap variable interest rates to shield themselves against the risk of continually declining interest rates.

Alternatively, you can shop around for savings account rates. You can get as much as 0.7 percent of annual percentage yield (APY) or approximately nine times the national average of 0.08 percent. These two rates can bring about a stark difference in your overall savings if you have a high amount of money to save.

There has been a constant decline in CD rates. However, if you open an account with one of the top online banks, you can yield better benefits. Before you put your savings anywhere, use an interest rate calculator to understand the savings your money can yield. Always look for high-yield savings or CD accounts via an online bank, as their rates will be competitive even when the interest rates are sliding. This also stands true for when you apply for a loan. For instance, you may notice that interest rates on a car loan from an online bank fetches you a better deal as opposed to traditional banks. Opting for banks insured by the Federal Deposit Insurance Corporation (FDIC) is always a safer option.

2. Refinance your loan
By refinancing your loan, you can lock in a lower interest rate. Depending on how much you owe and where you stand financially, you can consider refinancing your mortgage. This can help you save quite some money in the form of interest payments; and you may also be able to clear your debt faster. This applies to personal as well as other loans.3Shutterstock

3. Invest in real estate
If you intend to get a good yield, then avoid taking too much risk. A safe prospect in such scenarios are real estate investments. Investing in real estate can be an excellent way to diversify your portfolio and build long-term capital. This is, however, feasible for those who have enough to bear the down payment.

However, before making any significant changes, use an interest rate calculator to know how this decision will affect your overall wealth.