Poll: With significant interest rate cuts recently, what are your plans for emergency funds or other savings?
Posted on
Thu, 31st January, 2008 by
Jeremy
With a 1.25% drop in the Federal funds rate in just over a week, this signals bad news for the cash in your savings accounts. Whether it be high-yield online savings or more traditional bank and money market accounts, you will be seeing lower rates. We have been spoiled with nice rates on cash for a couple of years, but the tide is turning. As long as the economy is struggling, we may even see further rate cuts.
The real problem is that while interest rates are going down, inflation is still a major concern. Many savings accounts will now hardly be able to keep up with inflation, or possibly return less. This can have significant implications on your cash reserves. So, what changes do you see yourself making with your cash given the circumstances?
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I plan to do nothing different. I have high interest savings accounts for my emergency fund. Sometimes rates go up sometimes they go down. If the balance drops to far below my target, I dont mind throwing a few dollars in to bring it up. It is a small price in comparison to the freedom, flexibility, and, most of all, peace of mimd.
I plan to invest more money in equities that offer higher dividends such as consumer staple companies (MO, UN) and canadian oil trusts.
An emergency fund is supposed to be safe and liquid, so I won’t be putting it into stocks just because interest rates go down. My regular investment portfolio is already heavily into precious metals.
I plan to liquidate the majority of my cash and pay off my car loan. Doing so will elminate $24k in debt at 8.43% interest.
I’m glad your poll had the option we’re doing - save more to offset the difference. Currently the emergency money is in cash in an interest paying savings account.
I am not sure what I am going to do. I currently have a 3 month size emergency fund, which is much more than it sounds, at WaMu which has held at 4.75% last time I checked. I doubt they can hold out at that rate. One of my goals for this year was to increase the fund, but with these rates and equities at a discount, I may just invest more instead.
VANGUARD MONEY MARKET RESERVES (VMMXX)currently paying 4.32 seven-day yield. And BTW: Vanguard was savvy enough with their due diligence NOT to buy into the mortgage CDOs.
I don’t get too concerned over my interest rate on emergency savings because that money is there only for emergencies, not for investment. Now, I don’t go out of my way to earn 0.0% and stick the money in a checking account, but a decent online savings bank offers a good enough return for me.
While having the best yield possible in a savings account is good, I am happy where I am at and am unlikely to change. That means when CDs come for renewal, I will leave them at the same term whatever the rate, and my current online savings accounts will stay open with occasional cash deposited.
This is a tough one! We have an emergency fund set up already, and we are ok with the amount we have in it. We were planning on adding to it significantly in the near future so that we have money for another vehicle when the time comes (our truck is closing in on 200,000 miles). This is a short-term goal, so I am hesitant to invest the money in anything else, but don’t like the idea of having a lot of money that isn’t earning much at all.
I intend to hold fast to what I currently have for savings - HSBC who recently dropped their rate down to 3.8%. I’ll ride this out, it will evetually be raised back up.
I checked Other - for no changes. My emergency fund is in a Vanguard money market, which still has a higher return than a regular savings account.
I know I could increase my returns my using CD’s, but I want to keep things simple.
The recent cuts will stimulate the economy significantly. The stock market should hit new highs this year, probably late in the year. I would use this as a stock buying opportunity.
On the other hand, the dollar will probably continue to slide and if inflation rears its head the Fed will have to raise rates quickly to slow it.
I’m not going to do too much different, but I am thinking about using some of the cash reserves to pay off some student loan debt. With the sinking rates it’s going to be a little bit better use of the funds.
Yea, I think I am going to keep looking for the best rates possible (like most others) but without sacrificing customer service. I am willing to lose a few bucks to make my life more enjoyable…
Finding the highest rate possible and it seems like a perfect time to pay off the college loans, I’ll get a better return than any of the ‘high-interest’ savings accounts and my income level doesn’t allow me to deduct the interest anyway.