
With their 75 basis point rate cut last week the FOMC likely helped the economy in the long run, but they certainly didn't help the returns on certificates of deposits, money market accounts, or checking accounts. As soon as the Federal Reserve lowers rates, banks are quick to follow in lowering the interest rates paid out to investors. ![]()
Bankrate.com overnight averages show that the average one year cd return has plunged from 4.19% last week to 3.79% today, and I would venture to guess it will fall quite a bit further yet. Even the highest interest paying online high-yielding savings accounts don't look so hot anymore. ING Direct's Orange Savings Account, which is the most popular of these types of accounts, lowered its interest rate paid out to 3.65% this week.
What should you do at this stage? My advice would be to cut the amount of new investments you make into CD's and money market accounts. If you are going to make investments in these accounts you would be better served getting into at least a one year cd, or even longer, since rates are likely to continue to drop in coming months.
Quite honestly one can make the case that new investments into things like mutual funds or stocks are starting to look more attractive now since these investment vehicles are decreasing in their returns quite drastically. The days of just putting your money into a CD and expecting 5% or more are certainly over, at least for the foreseeable future.






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