Things to Do with Your Money While Interest Rates Are Low.
In March, the Federal Reserve slashed interest rates to near-zero amidst growing concerns over the economic impact and hardships about to be faced due to the coronavirus. The Fed noted that this “plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy.”
Until the economy reaches some sort of stabilization, the Fed has announced that they’ll aim to keep interest rates low, which means you can expect interest rates to sit at around 0% to 0.25% for at the very least a few more months. Wondering what this means for you? In short, it’s great news.
From taking advantage of the low interest rates in order to consolidate credit card debt to paying off your student loans and refinancing your mortgage loan, here are a few things you should do with your money while interest rates are low.
Refinance Your Student Loans
Interest rates for student loan financing actually fell long before the coronavirus crisis reached our shores. They were at a 12-month low last September following a second rate cute from the Federal Reserve. And, while you should take advantage of the current situation in order to refinance both private and federal loans, a lower interest rate might not be the best option for you depending on your payment plan.
If you’re currently on an income-driven repayment plan then this might not be the best option for you. However, if you’re able to pay off your loans consistently for the next few years, refinancing them to enjoy super-low interest rates while they last.
Transfer Savings to a High-Yield Savings Account
It’s always a good idea to have a savings account, but putting your money in a high-yield savings account is one of the most effective ways to really bulk up your savings without doing much work. And, while lower interest rates mean that most high-yield savings account APYs are at a low as well, it’s still a good time to move your money from a traditional savings account to a high-yield account.
Why? It’ll earn you more money on your savings overall. And, when interest rates go back up, you’ll have saved more money to eventually enjoy higher APYs as well. Not familiar with these kinds of accounts or the idea of APYs? Check out our guide here.
Consider Refinancing Your Mortgage
Mortgage loan rates are currently pretty low. In fact, statistics released from Bankrate show that refinancing rates were under 4% for 30-year mortgages and close to 3% for 15-year mortgages in March. While this isn't massive from the near 5% rates from last year, it’s a big enough difference to allow you to save lots of money over the entire life of your loan.
As with the student loan refinancing, however, you’ll want to make sure that this makes sense given your financial situation, how much you still owe on your mortgage and your overall credit score.
Consolidate Your Credit Card Debt
Borrowing money is easier than ever. And, that means that if you’re currently paying off lots of credit card debt, it might make sense to consider taking out a personal loan with a fixed interest rate in order to pay off the debt. Usually, financial experts don’t ever recommend taking on more debt to pay off other debt.
However, personal loan interest rates are so low right now that it might make more sense if your credit card debt has higher interest rates. According to the Federal Reserve, for example, borrowers who were charged interest on their credit-card debt paid an average of 16.97% in the third quarter of 2019. However, the average rate on personal loans during that time was 10.07%.
Prepare a Recession-Proof Investment Plan
If you have extra cash to invest at the moment, you’ll want to ensure that your investment plan is recession-proof. The current low rates are good for investors, but it doesn’t mean that you should dive in head-first without any guidance.
To create a recession-resistant investment plan, focus on the long-term and don’t stress too much about what’s happening now. It’s generally pretty safe to invest in the equity market during times like these, and think about investing in consumer staples that won’t be affected by the pandemic or a general recession.
Focus on Your Savings Goals
What should you do with your money while interest rates are low? Focus on your savings goals. Don’t feel the need to refinance your car loan or pay off insane amounts of debt right now if you’re working towards bulking up your emergency fund.
Low interest rates don’t cancel out the importance of having at least six months of living expenses saved up in a rainy day fund, especially as the United States and the rest of the world move further into uncharted territory regarding unemployment and financial instability.
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