2 ways rate cuts will impact your finances

Turning now to some of the ways that the Fed's easing cycle is hitting your money. The Fed cut rates by 50 basis points this month, causing a flurry of headlines about what savers should do with things like their high yield savings accounts or CD investments. So let's talk about it with Lee Baker, certified financial planner and founder of Claris Financial Advisors. Lee, great to have you here. First and foremost, just as we get into this high level, what do rate cuts mean for savers? So rate cuts mean two things for savers. And all of our viewers, I hope you get this picture. On the one hand, the rate cuts impact what you have in the bank, your high yield savings accounts, for example, you're going to be earning less. But on the flip side, you can also save money as it relates to your debt. And so those rates are going to come down as well on a lot of the debt that's out there in the market, although that's going to take a little bit longer. Yeah, that's what I was about to ask. At what pace do you see that coming down? How aggressive would the Fed have to be? We had 50 basis points in September. The markets right now are trying to price in probability for what November may look like. And over the course of this week, we've seen that even be a toss up or a coin toss at this juncture. Sure. One of the things that I think it's interesting, the conversation you were just having about the jobs market. One of the things that the Fed is keeping an eye on is the jobs market. And right. So do they feel like they need to reduce rates at a faster or bigger clip to do exactly what she said and get employers to feel better about bringing on more staff, buying equipment, things of that nature? You know, my guess at this point is that we will see a series of perhaps smaller 25 basis point type cuts over the next 12 to 15 months easily. While we have you, I want to get your thoughts on a few scenarios here. And first up, say you currently have a high yield savings account with those interest rates coming down. Should you move money out of those accounts then? Not necessarily. You know, one of the things I think we have to keep in mind is why is the money there in the high yield savings account? Right. You know, I'm sitting here in Atlanta, hunkered down, waiting for Hurricane Helene to have its impact here. So when we think about a rainy day fund, if this is money that you've got for emergency cases or if all of a sudden I got to pay somebody to cut up some trees, I need to leave that money in a high yield savings account type environment because I need to get to it quickly and I don't want it to drop down in its value. Now, on the flip side, if I'm looking at that as having some dry powder, if you will, and looking for an investment opportunity, and if I see that opportunity, sure, maybe now is the time where I maybe take it out of the high yield investments and put it into the markets. Okay. And so with that in mind, if you don't already have a high yield savings account, it sounds like now might be the time to consider opening one then. Yeah, you absolutely should open one, right? You know, one of the things that's a little interesting and I'll reflect back to the chart you showed, going back two, three years ago, we were in this zero rate interest environment, right? So the money you had in the bank, we didn't earn anything, or let's call it at least something very negligible. Even though the 5% high yield savings account rates are going away, four and a half is still pretty doggone good. So if you haven't had the opportunity yet, or perhaps you procrastinate it like a lot of us do sometimes, now is still a fantastic time to get some money out of just your bank account, put it into a high yield savings account because in today's environment, you can still get four, four and a half percent in some of those places. Lee, just lastly, while we have you here, certificate of deposit, CDs, they pay a fixed interest rate while your money is held for an agreed upon period of time. So with the Fed looking to cut rates further, is now a good time to lock in a CD? Yeah, so I would absolutely say that now is a good time to lock in before rates on CDs fall any further. When the Fed cuts rates, you see the most activity on the shorter end of the spectrum, in terms of time period. So if you can go to different sources, do some research and perhaps find some of those places that are still giving you perhaps 4.8, 5% interest rates on a 12 month or longer CD, go ahead and grab that now before it gets any further, as far as rate cuts are concerned. Another thing to keep in mind is to perhaps create a ladder of sorts, so that over time you can get rates locked in at different periods. So perhaps three months, six months, 12 months and so on. All right, Lee, you mentioned you were hunkered down waiting for Helene, hoping for the best for you, as well as your loved ones as you're navigating through that weather system. We'll hope to check back in in the future here for more conversations. Lee Baker, who's the founder of Claris Financial Advisors. Thanks so much.