AARP Hearing Center
After four years of interest rate hikes from the Federal Reserve, the central bank announced on Sept. 18 its first cut to the federal funds rate since the COVID crisis threw the economy into a tailspin in March of 2020. The Fed dropped its target range for the benchmark interest rate by half a percentage point to between 4.75 and 5 percent. The rate had sat between 5.25 and 5.5 percent for over a year.
The move will have ripple effects across the U.S. economy, driving down borrowing costs but also depressing interest earned on savings. Importantly, retirees and other savers who count on the income generated by their cash will need to think carefully about where to safely hold their money to earn the best returns.
“Returns on savings accounts, money markets and CDs (certificates of deposit) will come down as the Federal Reserve cuts interest rates, just as they went up when interest rates were rising,” says Greg McBride, chief financial analyst at Bankrate. “But all is not lost for savers, as the top-yielding accounts will continue to earn more than the rate of inflation, even as interest rates go down. That’s a pretty rare circumstance for savers, and it is poised to continue for the foreseeable future.” Inflation is currently sitting at 2.5 percent.
In other words, there are still places where you can stash cash and earn good interest, though you might earn a bit less than you did before the Fed’s latest move. Here are five to consider.
1. Money market accounts
These are safe, conservative options if you want immediate access to your cash, such as by writing a check. Money market accounts come in two types: those issued by banks or credit unions and those from investment companies such as Fidelity, Schwab and Vanguard. Both come with check-writing capabilities, allowing you to withdraw money without any delays or penalties.
You can find current money market account offers on sites like Bankrate, Deposit Accounts and NerdWallet. Recently, a number of money market accounts on Bankrate were offering around 5 percent interest; on a $10,000 deposit, that equates to $500 a year in interest. Bank deposits are guaranteed to at least $250,000 per institution by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Association (NCUA).
More From AARP
Save at the Grocery Store With These 25 Strategies
Food prices are still elevated, but there’s ways to saveWhip Inflation With I Bonds
Safe, high-yielding investments from the U.S. TreasurySimple Investing is Hard
Why a 3-fund strategy is all you need to succeedIf You're Saving for the Future With Ideas From the Past...
...Financial planner Allan Roth has new advice for youRecommended for You