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In September, the Federal Reserve Open Market Committee delivered a long-anticipated cut to the federal funds rate.
The benchmark interest rate is now in the range of 4% to 4.25%. The board also signalled further rate cuts ahead, and the market now expects the rate to drop as low as 3.25% and 3.50% by 2026, according to Morningstar. (1)
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Simply put, the U.S. has entered an easing cycle, which should benefit borrowers across the country. But if you’re a saver or lender, these rate cuts mark the end of an exceptional era. For retirees or someone living off passive income, it may no longer be as easy to generate high returns from savings accounts.
However, the simple truth is that you should probably keep cash in the same places you did before. Your emergency fund and other savings that you want easy access to should always be kept in safe, low-risk liquid assets.
Money that you won’t need in the short term can go towards long-term investments that earn higher returns, like stocks. And generally, stocks are said to rise when interest rates fall.
Ditch the basic and consider high-yield alternatives
That said, there are a wealth of options beyond a basic savings account.
Interest rates on this type of account tend to be below 1% in terms of APY. That means that you’re often making less than $1 on every $100 you park in your account. Fortunately, there are now more options than ever for accessing higher interest rates to make your cash work harder for you.
It’s also important to remember that one of the major benefits of these high-yield accounts is their liquidity. Generally speaking, it’s easy to get to your cash when you need it — unlike with stocks, bonds and certificates of deposit. This can make high-yield accounts a significant part of building an emergency fund.
One option for a high-yield account is to work with SoFi, where you can earn up to a 4.50% APY on savings balances and 0.50% APY on checking balances. Even better, SoFi won’t charge you any fees and has no monthly maintenance costs or minimum balance requirements.
You can earn even more with direct deposit or qualifying deposits. When you set up a direct deposit, new account holders can get a cash bonus of up to $300.
Deposits are insured up to $250,000 through SoFi Bank, with additional coverage up to $2 million through the SoFi Insured Deposit Program.
Read more: Robert Kiyosaki warns of a ‘Greater Depression’ coming to the US — with millions of Americans going poor. But he says these 2 ‘easy-money’ assets will bring in ‘great wealth’. How to get in now
CDs
Other options for higher interest rates include certificates of deposit (CDs). Unlike traditional savings accounts, CDs are designed to lock in your rate — you just have to be willing to freeze your cash too.
As of October 20, the highest CD rate available is 4.25% from LendingClub. This is for an eight-month term, which means you might even ride out a few rate cuts while continuing to earn a healthy return on your cash.
You can also lock in similar rates for a much longer term. And with MyBankTracker, you can shop and compare top certificates of deposit rates from various banks nationwide.
Their extensive database shows the most competitive rates, with daily rate updates and personalized recommendations based on your risk preferences and time horizon so you can find the right CD to meet your retirement savings goals.
ETFs
With rates falling, stocks could rise. And so far, they have: Stocks have continued on their bull run since September’s rate cut.
While it could be worth investing in the stock market as rates continue to fall, it’s important not to put all of your eggs in one basket. Over-relying on a single stock or market can put your portfolio at serious risk.
That’s why ETFs are an increasingly popular choice for investors. You can think of an ETF as a broad basket of stocks — which means you don’t have to do any of the research or stock picking yourself. Instead, you can invest directly in an array of stocks at once, easily spreading your risk and exposure.
Acorns is a micro-investing app designed to help you invest in ETFs with your every day purchases. It was designed for those who are new to investing and want an easy way to grow their wealth without requiring extensive financial knowledge.
Every time you make a purchase on your credit or debit card, Acorns automatically rounds up the price to the nearest dollar and places the excess — the coins that would wind up in your pocket if you were paying cash — into a smart investment portfolio.
Depending on your risk tolerance, you might hold the Vanguard S&P 500 ETF, which tracks the performance of the stock market, or the more conservative iShares Core U.S. Aggregate Bond ETF, which tracks the U.S. bond market.
And if you sign up now and set up a recurring investment, you can get a $20 bonus investment.
Real estate
Beyond traditional savings and investing accounts, you might want to consider alternative assets in your portfolio. Stocks and bonds still matter, but they don’t necessarily capture all the opportunities out there to protect your portfolio in a volatile market.
That’s where real estate can step in. One vertical is home equity: A $34.9 trillion market in the U.S. that has historically been reserved for large institutions — until now.
Homeshares allows accredited investors to gain direct exposure to a portfolio of owner-occupied homes in top U.S. cities through their U.S. Home Equity Fund without the hassle of buying, owning or managing property.
The fund focuses on homes with substantial equity, using Home Equity Agreements (HEAs) to let homeowners access liquidity without taking on debt or interest payments. This can create an attractive, low-maintenance investment vehicle for retirement savers, with a minimum investment of $25,000.
Some experts recommend adding alternative assets, such as real estate, to your retirement portfolio, specifically in a 50/30/20 mix of stocks, bonds and alternative assets. Unlike stocks, they aren’t tied to market swings and can reduce concentration risk, while also providing a hedge against inflation as home values rise.
With risk-adjusted target returns of 14% to 17%, Homeshares’ U.S. Home Equity Fund offers investors access to America’s largest store of household wealth.
And for a limited time, Homeshares will provide Moneywise readers an exclusive 5% bonus for IRA investments.
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Morningstar (1)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.