Falling interest rates, like the recent cuts from the Federal Reserve, are giving Americans a chance to rethink borrowing, saving and investing. According to CNBC, the Fed’s latest cuts could be just the start, with more reductions expected later this month if the current budget standoff in Washington continues.
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GOBankingRates spoke with Kelly Brown, CEO and founder of Ampersand, about how lower interest rates affect personal finances, and what people could be doing to take advantage.
Look Into Refinancing
Lower rates are people’s cue to be more proactive, according to Brown. Credit cards, mortgages and student loans can be significant drains on a household budget, and refinancing at a lower rate can mean a drop in monthly payments or a shorter repayment period, freeing up cash for other priorities.
Before signing on the dotted line, factor in fees, any penalties and how long it will take to break even. If the savings don’t clearly outweigh the costs, it may not be worth it.
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Choose Savings Accounts Wisely
Lower rates usually mean reduced returns, making it harder to grow savings. “While your main focus may be on low rates, safety and protection are equally as important,” said Brown.
A fully insured high-yield savings account that’s kept separate from everyday spending can protect funds while they earn a decent return. Some banks still offer better returns than others, and small differences can add up. Make sure deposits to any savings accounts are FDIC-insured, and the money can be accessed quickly if needed.
Avoid Over-Borrowing
“Lower rates can make borrowing look more attractive, but cheaper doesn’t mean free,” warned Brown, “Taking on new debt is still a commitment, and payments can quickly become a strain if income changes or a variable rate resets.”
Any new loan should make sense for both today’s budget and long-term plans, and it’s worth comparing lenders to see who offers the most reliable terms.
Diversify Investment Portfolios
Lower interest rates can lead to a short-term boost for stock prices, but that often means lower returns down the road; staying focused on long-term goals as part of your investment strategy is vital. Brown recommended diversifying portfolios and not making moves based on short-term market noise.
Automate Financial Progress
Setting up regular transfers to savings, investments or loan payments helps money grow over time, and can make it easier to achieve financial goals. In a lower-rate environment, it can be especially helpful because it turns short-term opportunities like cheaper borrowing or extra cash into long-lasting financial benefits without having to think about it every month.
Balance Short-Term Wins With Future Goals
Paying down debt or refinancing at a lower rate can bring quick relief, but it’s important not to lose sight of long-term goals, according to Brown. “Aim for a balance that earns a solid return while keeping your money protected,” she said.
Redirecting the cash that’s freed up from lower interest rates toward retirement savings, investments or an emergency fund can turn today’s rate cuts into more stability in the future.
Making Lower Rates Work
Lower interest rates don’t last forever, which makes this a good moment to reinforce financial health. Taking advantage of cheaper borrowing, strengthening savings habits and staying focused on long-term goals can help build a stronger foundation when rates inevitably rise again.
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This article originally appeared on GOBankingRates.com: 6 Smart Money Moves To Make as Interest Rates Drop
