FINANCE
Strategies for Saving in a Down Market
Whether you tune in to the evening news or flip
through a newspaper, it’s hard to avoid talk of
an economic slowdown. As tempting as it may be
to switch the channel or toss away the newspapers,
this approach won’t protect your hard-earned dollars.
Fortunately, just as the Federal Reserve has certain
tools it uses to regulate the U.S. economy, you’ve
got tools to regulate yours.
One especially powerful tool in the Fed’s arsenal
is its ability to adjust short-term interest rates.
In a down market, the Fed often cuts the target
fed funds rate (commonly referred to as the “fed
funds rate”) in an effort to stimulate the economy.
The idea is that lower interest rates encourage
people to borrow more and spend more, which in
turn, can boost the economy.
While there’s typically a lag of at least several
months before the economy rallies, the impact of
the Fed’s rate cuts on savings-product yields is
usually felt quickly. Further, banks may even pre-empt
Fed action by lowering CD rates in anticipation
of interest-rate cuts, while money-market account
rates typically fall shortly after rate cuts. Since
investors tend to gravitate toward traditional
savings products when the markets are down, these
interest-rate decreases can leave bewildered investors
wondering just where to turn. The scenario may
sound bleak, but with the right tools, investors
can minimize the impact on their savings.
Lock in a CD rate now: Given that yields on CDs
typically drop in advance of fed rate cuts, by
locking in a CD rate now, you can assure yourself
a fixed interest rate for a little bit longer.
Move to a money market account: By moving funds
to a money market account, you’ll gain peace of
mind knowing your principal is safe. You’ll also
have the freedom to move your money elsewhere,
or re-enter the market whenever you choose.
ASK AAA
AAA is always on the lookout for ways to help members
get the most value from their membership. That’s
why we’ve partnered with Discover Bank to offer
preferred rates on CDs, money market accounts,
and IRAs. Log on to AAA.com/Deposits, or call
888-728-3230 today to learn more about AAA’s
exclusive member-only rates and benefits.
Photo: ©istockphoto.com/Lilly Day
