The Federal Reserve’s recent interest-rate cut might help frequent credit card users, but it offers nothing for people trying to build a cushion of savings.
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The central bank announced on Wednesday it was reducing its benchmark interest rate by one quarter of a percentage point, its second rate cut this year, and that could pinch your wallet, wealth advisors warn.
“From a saver’s perspective, a drop in interest rates hurts because banks generally pay lower interest on savings,” John Sweeney, head of wealth and asset management at Figure Technologies, told FOX Business.
Here are some tips to help grow your nest egg:
Put less in your checking account
For your monthly bills, try keeping only one to two months of spending requirements in your checking account, Sweeney urged.
“You will earn very little on these funds so try to keep a small buffer -- so you don’t bounce checks -- and replenish your account with earnings each month as you spend,” Sweeney said.
Start an emergency fund now if you don’t already have one
Bulk up on saving for a rainy day. People should have at least six months worth of living expenses in a liquid account so they can withdraw money without a penalty if needed.
“Everyone gets a flat tire or breaks their glasses, and you need to spend money to get back on track that is outside of your normal monthly expenditures. People should look for savings accounts that are liquid and offer a high interest rate,” Sweeney suggested, advising consumers not only to shop for the best return but to keep an eye on it to make sure it stays competitive.
Track 'excess cash' in your retirement account
It’s important to be conscious of any extra money you might have in a retirement account or any other savings accounts that should be invested for the long-term.
“Ensure that regular deposits into retirement accounts go straight into long-term funds that align with your time horizon and risk tolerance,” Sweeney said.
Don’t alter long-term savings goals
Don’t let a change in interest rates alter your long-term investment goals. If you’re planning to buy a home, and you’ve saved up enough money to do it, don’t stress about a short-term change in rates.
“Do shop to find a competitive rate, with a convenient and pleasant borrowing experience, but don’t forgo a decision to buy a house because mortgage rates climbed last week,” Sweeney suggested.