With the Federal Reserve announcing a 50-basis point cut to interest rates on September 18, now is an excellent time to reassess your savings strategy. The rate drop, driven by cooling inflation and signs of an economic slowdown, marks the first adjustment since July 2023, when the Fed was focused on combating inflation through rate hikes.

This shift can significantly impact your financial plans, mainly how your money grows in various savings vehicles. While lower rates can lead to reduced returns on traditional savings accounts and share certificates, there are still ways to make your money work for you. Savings accounts, certificates, and money market accounts remain reliable options to build toward future goals with steady returns.

Why have a standard savings account

Savings accounts are a practical option for earning interest on cash for short-term goals, such as building an emergency fund, preparing for holiday spending, or saving for a vacation. However, if you're focused on long-term savings, you may find higher interest rates with other financial products like certificates or money market accounts, which can offer better growth potential over time.

Share Certificates

A share certificate is a time-locked savings account that holds an initial deposit for a set period.

Although certificate rates may have dipped since the Fed's recent interest rate drop, certificates typically offer higher rates than regular savings accounts. They can be a great way to earn higher interest yields by locking away your savings for a set period of time – anywhere from 3 months to several years. Some might set a future savings goal, and open a certificate for that future date. As long as you don't withdraw funds early, your APY and earnings are guaranteed.

The benefit of a certificate is that you lock in the current rate when you open it, which can give you higher returns if you’re okay with keeping your money tied up for a set period. Remember that withdrawing early usually comes with penalties that can cut your earnings.

Now could be an opportune time to open a share certificate and lock in a higher rate before potential future cuts. To hedge against rate fluctuations, consider building a share certificate ladder opening multiple certificates with different maturity dates.

When to open a certificate

A certificate is a solid option if you already have an emergency fund and want to earn a steady interest rate on a set amount of money you won’t need in the short term.

Money market accounts

Money market accounts blend features of both checking and savings accounts. They typically offer a higher interest rate than a regular savings account, and you can make limited withdrawals each month, often with access to checks or a debit card.

However, with the recent Fed rate cut, the interest rates on money market accounts may be slightly lower than before, though they can still be higher than a standard savings account.

When to open a money market account

A money market account is a good option for an emergency fund or short-term goals, offering some access to your funds without penalty. But for long-term savings, you may explore options offering higher returns.

How to optimize your savings

Using a mix of savings vehicles can be a smart strategy to balance short and long-term financial goals while capitalizing on different interest rates. No single account may provide everything you need, especially in a fluctuating rate environment, so diversifying your savings can help you maximize returns and maintain flexibility.

By combining different options, you can create a well-rounded approach. Your emergency fund remains accessible while your long-term savings grow at a higher, locked-in rate, helping you reach your financial aspirations. 

Spectrum Credit Union is here to help. Our team can guide you through your options, from savings accounts to certificates and money market accounts, to build a personalized strategy that works for you.