Finance
Where to move your money when interest rates are poised to fall
With the Fed poised to cut interest rates next week, the ripple effect will show up in certificates of deposit and high-yield savings accounts, which currently offer rates of more than 5%.
They aren’t likely to fall dramatically following a rate cut but rather ease back closer to 4% and linger above the inflation rate for at least the next year. So these accounts should still be your go-to for your emergency fund or cash set aside for short-term expenses.
That said, the Fed’s anticipated action offers an opportunity to make some money moves that take advantage of the downward tilt in interest rates.
“The projected cutting may pull the rug from under the high-yield savings rates,” Preston D. Cherry, founder and president of Concurrent Financial Planning, told Yahoo Finance. “Now might be the best time we’ve seen in a few years to swap cash in high-yield savings for long-term bonds to lock in a higher yield for income payments for lifestyle and retirement portfolios.”
Since 2022, when the Fed began to raise short-term interest rates, bank savings accounts have been a better place to park your cash than bonds. That’s set to change.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Bonds are back
It’s a good time to shift to bonds for those nearing retirement who are looking to rebalance their retirement savings amid stock market volatility.
The best way to earn a high total return from a bond or bond fund is to buy it when interest rates are high but about to come down, Cherry said.
If you buy bonds toward the end of a period when rates are rising, you can lock in high coupon yields and enjoy the increase in the market value of your bond once rates start to come down.
And if you’re a bond lover, you’re up. After more than a decade of dismal bond yields, the two-fold impact of high rates right now and falling inflation offers an opportunity for investment income. When interest rates move lower, bond prices will rise. (Interest rates and bond prices move in opposite directions.)
“Adding low-price and higher-yield long-term bonds at current levels could add total return diversification value to your bond and overall investment portfolio, which has not been the case in recent past rate-raising environments,” Cherry said.
This is a narrow opportunity, though, before rates start dipping and bond prices go up.
“If you have adequate liquidity and won’t need to tap the money at a moment’s notice, then locking in bond yields now over a multiyear period can provide a more predictable income stream,” Greg McBride, chief financial analyst at Bankrate.com, told Yahoo Finance.
“As the Fed starts cutting interest rates, short-term yields will fall faster than long-term yields in the months ahead, so do this for the income rather than the expectation of capital gains,” he said.
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Laddering provides a ‘more predictable income stream‘
One way savers can pivot as rates head down is to set up a bond or CD ladder with staggered maturities, instead of investing all your funds in a single CD or bond with one set term length. This tactic can provide “a more predictable income stream while providing regular access to principal,” McBride said.
I hold my personal savings, for example, in several buckets, including six-month and one-year CDs, a money market account, high-yield savings accounts, and a checking account.
The bulk of my retirement holding is stocks and bonds mainly through broad index funds. How you divide up your savings and investments between stock and bonds, mutual funds and money market funds, or high-yield savings accounts is a balance that only you will know you’re comfortable with, based on your risk tolerance and how soon you need to tap the funds.
Many retirees want a more conservative asset mix as they age so they don’t face that uneasy feeling when the stock market is shaky. That’s why near-retirees and retirees, in particular, who haven’t taken a gander at their asset allocations for a while should consider doing so.
Read more: CDs vs. bonds: What’s the difference, and which one is right for me?
How to put money in bonds for right now and retirement
Most 401(k) investors are in bond mutual funds for the fixed-income portion of their portfolios, which are highly diversified and usually invested in intermediate (five-year) high-quality government and corporate bonds.
Most of us aren’t researching and investing, for instance, in individual intermediate bonds. If you opt to do-it-yourself and choose individual bonds and hold them until they mature, you’ve got plenty to select from, of course. Fidelity offers over 100,000 bonds, including US Treasury, corporate, and municipal bonds. Most have mid- to high-quality credit ratings, but to me the sheer number of choices is mind-boggling.
So I buy shares in a wide range of individual bonds via a bond mutual fund or ETF to add a bond ballast to my retirement accounts. The Vanguard Total Bond Market ETF, for example, is a diversified, one-stop shop comprising more than 11,000 “investment grade” bonds — including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities — all with maturities of more than one year.
Right now, more than 60% of the Vanguard fund’s total assets are in government bonds, and its year-to-date return is 4.94%.
As Vanguard notes, this fund “may be more appropriate for medium- or long-term goals where you’re looking for a reliable income stream and is appropriate for diversifying the risks of stocks in a portfolio.”
For shorter-term goals, staying ahead of rates falling is smart to lock in alluring rates for money you might need sooner rather than later.
Cash has ‘zero risk’ of losing nominal value
The majority of financial advisers I spoke to didn’t suggest any knee-jerk actions ahead of the Fed meeting. In other words, don’t close your bank accounts.
“Inflation has certainly moderated, but in our opinion is not likely to be a further decline substantially,” said Peter J. Klein, chief investment officer and founder of ALINE Wealth.
If that’s the case, the Fed will not keep lowering interest rates but will hold them steady moving forward.
“Looking at the long arc of inflation history, one can see the changes … leading to sticky and persistent inflationary pressures. So, the notion that rates will come down substantially — and stay down — is not our base case,” Klein said.
That means that those savings you have in a federally insured, accessible bank account earning above the rate of inflation remain a good bet. That’s especially the case for those nearing or in near retirement who plan to tap that money for living expenses and don’t want the worry that comes from price fluctuations in stocks and bonds.
“Cash is the only asset that an investor can deploy in a portfolio that has zero risk of losing its nominal value,” Klein added.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.
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Twenty-six million dollars. That’s how much investing platform Robinhood paid out earlier this year after it was found to have breached a range of financial regulations. Amongst them? Failure to properly manage the social media influencers promoting their products. With these so-called “finfluencers” becoming an ubiquitous part of fintech marketing strategies, this eye-watering penalty should serve as a cautionary tale to brands putting content and reach above compliance and risk.
The world of the finfluencers has expanded dramatically in recent years. These young, passionate and social media savvy voices amass legions of fans and millions of views as they dole out advice on everything from stock tips to savings techniques. The main audience? Gen Z. Facing the dual pressures of a tough job market and the spiralling cost of living, Gen Zs are turning to social media for new routes to financial stability — hungry for insights and advice that will help them get ahead. With a huge 34% of Gen Zs saying they learn about personal finance from TikTok and YouTube, finfluencers have exploded in number, reach and power.
Acquiring Gen Z customers is a huge priority for marketing teams. In the world of financial products, customers are sticky. Get them young and you might have a customer for life. That’s why the rise of finfluencers represents a huge opportunity for companies operating across the finance, investment and savings space. And it’s one they’ve been tapping into.
On the surface, engaging finfluencers for paid partnership is a marketing slam duck for fintech and finance brands. Unlocking a route into Gen Z audiences via trusted, engaging voices. But, as Robinhood’s experience shows, the stakes are high when you get it wrong. Any company selling financial products or services is subject to a litany of regulation. And these high standards of compliance aren’t necessarily compatible with the fast-paced, algorithm-chasing game of social media content creation. It’s a conundrum that’s starting to trip brands up.
Alongside Robinhood, this year has also seen Public Investing fined $350k by the US regulator FINRA after influencers made misleading claims. And a recent crackdown from the UK’s financial regulator, the FCA, saw three individual finfluencers end up in court charged with encouraging high-risk strategies without the correct authorisation. Brands and the influencers they rely on are sailing far too close to the wind.
And this risk-reward matrix is only set to become more intense. The use of AI tooling in marketing is speeding up content creation and enabling thousands of iterations of adverts to run simultaneously. And brands are increasingly upping the percentage of marketing budget allocated to social media. Collectively, this is encouraging faster, more dynamic social strategies, with influencers forming a critical part. It’s putting marketers on a potential collision course with regulators cracking down on violations.
Companies leveraging social media partnership with a view to reaching Gen Z customers cannot afford to overlook this reality. From eye-watering fines to a tarnished brand, the implications of getting your social marketing wrong are severe.
But that doesn’t mean brands can’t play in this space. They just need to be smart about it.
Businesses swimming in this pool need to ensure they aren’t sidelining the compliance and risk management strategies that will keep them on the right side of regulation. This cannot be an afterthought. Marketing teams must invest in tooling, work closely with legal teams, and run stress tests on campaigns to ensure they are watertight.
Regulators are coming for finfluencers and the businesses that work with them. Companies should heed the warning and not let their quest for young, digitally-savvy customers rush them into an approach which could see them break the law and sink their finances. Instead, the same level of zeal applied to the creative should be applied to the compliance. They are two sides of the same coin. Combined, they’ll allow companies to cash in.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
The United States sanctioned financial operatives funneling tens of millions of dollars from Iran to Hizballah. These individuals collaborate with businessmen and exchanges to enable significant financial transfers from Iran and conduct covert business dealings that fund Hizballah’s terrorist activities.
This action supports President Trump’s whole of government policy of maximum pressure against Iran and its terrorist proxies like Hizballah, as detailed in National Security Presidential Memorandum 2 issued on February 4.
The United States is committed to supporting Lebanon by exposing and disrupting Iran’s covert financing of Hizballah. By enabling Hizballah, Iran holds Lebanon back and undermines its sovereignty. Iran and Hizballah cannot be allowed to keep Lebanon captive any longer. The United States will continue using every tool at its disposal to ensure this terrorist group no longer poses a threat to the Lebanese people or the broader region.
Today’s action is being taken pursuant to Executive Order (E.O.) 13224, as amended, which targets terrorists and their supporters. The Department of State designated Hizballah as a Specially Designated Global Terrorist pursuant to E.O. 13224 on October 31, 2001, and as a Foreign Terrorist Organization on October 8, 1997. For more information, today’s designation can be found on the Press Release.
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