Federal Reserve Rate Cut Means Lower CD and Money Market Rates Are Coming

Yesterday the Federal Reserve moved to lower its benchmark on interest rates by 50 basis points to 1.5%. The move was spurred by the current credit crunch and the financial crisis that is going on both in the United States and around the world. Certainly the move was a welcome one that most economists felt was absolutely necessary for the financial system and the markets, but there is a real loser in this as well. The real loser here is the person who is trying to invest in safe things such as a savings account, money market, or certificate of deposit. Why are they the loser in this scenario? They lose in this scenario because when the Federal Reserve cuts interest rates that makes it much more difficult for banks to offer competitive yields on any kind of interest earning short term investment.

The real irony here is that just as many Americans are worried about their money and wanting to get their money out of the turbulent stock market and into things such as CD's and money markets the government intervention is going to make them earn less money on those investments. It all seems unfair to the consumer who is just trying to earn the best interest rate possible on their hard earned dollars, but that is the way it is when economic times get tough. The Federal Reserve deemed it necessary to lower interest rates to try to help lending become more readily available, which in turn hurts things such as interest on safe investments.

What should you do about this now? The truthful answer is if you want to have your money in safe haven such as a certificate of deposit or a money market account then you should be looking for the best rates right now. It is highly likely that over the next few weeks and months the offers that your local bank have on these kind of safe investments will be even lower than they are now. At this point the best thing to do is act quickly before the banks have all moved to lower their offers based on the action of the Federal Reserve.