3 financial steps the Fed needs to take before cutting interest rates

Cooling inflation is setting the stage for the Federal Reserve to cut interest rates after a series of hikes that began in 2022 and continued through 2023. The Federal Reserve has kept interest rates steady over its past several meetings. And while the central bank is not expected to cut interest rates at its upcoming March meeting, the Fed has signaled that a rate cut is likely in late 2024.

Lower interest rates can be a good thing for consumers looking to borrow money. Now, borrowing is expensive because interest rates are still high. However, once it starts to decline, it may make more financial sense to sign for a loan.

But while it may still be months before the Federal Reserve is ready to cut interest rates, that doesn’t mean you, as a consumer, can just sit on the sidelines and wait. While interest rates are still rising, here are some key actions to consider now:

1. Keep your CDs for the long term

The Federal Reserve’s interest rate hike wasn’t all negative news for consumers. Higher interest rates have made CDs more attractive.

However, if the Federal Reserve begins to lower interest rates, CD rates may follow suit. So now is a good time not only to store CDs in general, but also to store long-term CDs.

CD rates offered three, four, or five years out may not compare to the rates savers can earn today. So if you’re saving for a distant goal, a 36-, 48-, or 60-month CD may be a good option.

2. Open a high-yield savings account

Just as CDs pay more these days, so do savings accounts. So if you haven’t yet switched from a brick-and-mortar savings account to an online high-yield account, now is a good time to make the leap. In the process, you may get a much higher interest rate on your money.

Of course, this doesn’t mean you have to completely cut ties with your current bank. Maintaining a checking account at a local bank can provide you with benefits, including access to a variety of services and face-to-face interaction with bank staff. However, you can find the best savings account rates at online banks, so it may be a good idea to open an account while interest rates are still high.

3. Increase your credit score

If the Federal Reserve lowers interest rates, you may have the opportunity to borrow money. Now is a great time to improve your credit score. That way, you can not only qualify for a loan but also enjoy a competitive interest rate.

You can improve your credit score in a variety of ways. Start by paying your bills on time and checking your credit report for errors. If possible, it may also help you pay off existing credit card debt. And this is actually an important thing to do at a time when interest rates are still high.

Interest rate cuts could come before we know it. Before that happens, take these steps to help your personal finances.

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