3 Smart Financial Moves to Make Before the Fed Lowers Interest Rates

Essential Insights

• The Federal Reserve is expected to cut the federal funds rate in September, impacting borrowing costs.
• Financial advisors recommend reviewing high-interest debt ahead of rate changes.
• Now is an ideal moment to boost your savings by taking advantage of higher interest rates.

The Federal Reserve has yet to lower interest rates, but financial experts encourage proactive steps to manage debt and savings before cuts occur.

To combat inflation, the Fed raised its benchmark rates to historic highs, increasing borrowing expenses. However, a rate reduction is anticipated soon, with many expecting the first cut at the upcoming September meeting.

Financial planners emphasize the importance of preparing now to capitalize on upcoming changes. Below are three recommended strategies to consider before the Fed reduces rates.

Refinancing Your Mortgage Could Be Advantageous

Exploring mortgage refinancing options is worthwhile at this stage, according to financial professionals.

Research from Investopedia indicates that homeowners who purchased during the Fed's inflation-fighting period faced mortgage rates exceeding 8% at their peak. These homeowners might now refinance at rates over 1.5 percentage points lower.

Shaun Williams, a certified financial planner at Paragon Capital Management, advises refinancing if you can manage the associated costs and time, and secure a rate at least 0.5% lower than your current mortgage.

For example, refinancing a 30-year mortgage balance of $250,000 from 7.79% to 7.29% could reduce monthly payments by over $85, saving nearly $31,000 in total interest, based on Investopedia's analysis.

Eliminate High-Interest Credit Card Debt

Mortgage debt isn't the only area to focus on; credit card interest rates have surged by seven percentage points since the Fed's inflation efforts began, a fact many cardholders overlook.

Switching from high-interest credit cards to lower-interest options or personal loans can be financially beneficial, says Robert Persichitte, a certified financial planner at Delagify Financial.

Sarah Paulson, certified financial planner at Valkyrie Finance, adds, “Credit cards are often overlooked. I encourage clients with good credit scores to consider refinancing credit card debt through balance transfer cards or personal loans with better rates.”

Maximize Your Savings Strategy

Even amid rising costs, there are smart ways to save effectively.

Depositing funds into high-yield savings accounts allows you to earn more interest than standard accounts and helps curb unnecessary spending, explains Paulson.

Experts also recommend being strategic about where you place your savings. While Certificates of Deposit (CDs) remain popular due to high rates, it might not be essential to lock funds away or face early withdrawal penalties if other high-rate savings options are available, notes Persichitte.

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