Safe Saving Strategies for Today's Interest Rates

The options can seem daunting when it comes to deciding where — and when, and how — to invest your money and make the most out of your savings. As interest rates and the global financial markets shift, the safest places, and strategies, can easily seem like a moving target.

Why interest rates matter

Perhaps the most important financial tool at The Federal Reserve’s disposal is its ability to raise and lower interest rates. The prevailing wisdom behind this is that when the country’s economy is struggling, lower interest rates can motivate purchasing and borrowing behavior, helping generate a positive cycle of increased financial trust that supports it. The inverse of this is also true, so that when the economy is thriving, the Fed may choose to raise those rates, restricting access to loans and other forms of liquidity to help moderate growth. In today’s market, interest rates are low, so an eventual increase is likely on the horizon. However, as of July 27, 2016, the Fed has declined to raise rates.

What low interest rates typically mean for savers

Any change in the interest rate (up or down) can have an unpredictable impact on the stock market, and for those with savings invested in the markets, like many traditional 401(k) plans or money market accounts, the results can be nerve-racking.

While markets fluctuate in the short term, that doesn’t necessarily present cause for alarm. Retirement accounts are often structured to weather these changes, with targeted long-term savings goals still achievable. At the end of the day, retirement accounts and individual savings plans remain some of the best tools for your personal financial planning success.

What should I do while rates are low?

If you’re looking to refinance your mortgage or other loans, doing so while rates are low can be beneficial. When it comes to savings, comparing national and local rates on different savings plans will help you make an informed decision. It’s also smart to compare different kinds of savings plans, as it’s not uncommon, for example, to find higher-yield IRAs or money market accounts with more competitive rates that could help you save more quickly.

It’s also worth shopping around to find the best rates offered by different institutions. Community banks, like Dime Community Bank, often feature better rates than the big banks, simply because they’re able to move more quickly when interest rates do change. For example, at Dime, we’re able to offer a competitive 1.20% APY on our money market accounts.

Tips for choosing savings plans

When the Federal Reserve raises interest rates, it’s no guarantee that banks will operate in kind, so it’s a good idea to compare rates from a variety of institutions before deciding where to save. “Good” rates vary with the federal funds rate, as well as with individual banks and accounts.

  • Make sure you understand the full terms and conditions of each bank’s rates — banks regularly run promotional rates for certain accounts that may expire or decrease after a set period. This may mean it still makes sense for you to consider saving this way, just to be prepared to adjust your plan, if necessary, when things change.
     
  • In a financial environment where we expect interest rates to change or fluctuate, it’s a good idea to keep your savings as liquid as possible to position yourself to take advantage of any changes that come. CDs with very long deposit terms may not be the best choice when there’s an interest rate change on the horizon, because your funds will be locked in for that preselected period of time, and/or you may be penalized for withdrawing from them before the deposit period is up.
     
  • Make sure you also pay attention to account rules - some banks require that a certain amount of average monthly funds be in the account. Learn all of these finer points before making the decision about where the best place to save your money is.

Selecting the right savings account is even more important as interest rates begin to rise, as most financial experts expect them to in the coming quarter. At Dime, we’re here to help answer any questions you may have about interest rates, money management tips and how you can best position your savings for success.