3 Ways to Make the Fed’s Giant September Rate Cut Work for You

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The Fed’s September interest rate cut is worth acting on. Take a look at some key moves to consider making. [[{“value”:”

It wasn’t so surprising to see the Federal Reserve slash its benchmark interest rate by half a percentage point last month. A rate cut was completely expected, given the way inflation has slowed down this year. And chances are, September’s rate cut is going to be the first of many.

In fact, the Fed is slated to have two more meetings before the end of the year. And chances are, we’ll see some follow-up rate cuts, though perhaps smaller ones than the giant cut that happened in September.

The bad news is that the Fed’s September rate cut has already resulted in lower savings account rates. But there are a number of ways you can still benefit from that rate cut. Here’s how to make it work to your benefit.

1. Move money out of a savings account and into a CD

It’s true that rates on savings accounts and certificates of deposit (CDs) are on the decline following the Fed’s big rate cut last month. But many CDs are still paying close to 5%. So it’s still a good time to open one — if doing so works for your financial situation.

If you have money in your savings account that’s supposed to serve as your emergency fund, then you should keep it where it is (as long as it’s in a high-yield account). A CD isn’t a good place to put emergency savings because if you end up needing to take a withdrawal, you risk a penalty for doing so before your CD matures.

But if you have money in savings beyond what you need for an emergency fund, then opening a CD is a smart thing to do right now. In fact, you may want to open your next CD before the Fed’s next meeting, which happens on Nov. 6 and 7. If the Fed makes another large rate cut next month, you may find CD rates tumble even more.

2. Boost your credit score to qualify for an auto loan

Auto loan rates tend to fall in line with Federal Reserve rate cuts. If you’ve been looking to buy a car, you may want to pause shopping for vehicles since financing an automobile is likely to be more affordable following September’s rate cut.

That said, a car is still a large expense, so it’s in your best interest to consider a used vehicle instead of a new one to lower your purchase price. And if you do opt to buy new, don’t overpay for extra features you can do without.

It’s also important to try to boost your credit score any time you’re gearing up to borrow a lot of money, which is likely the case with an auto loan. You can raise your credit score fairly quickly by reducing existing balances on your credit cards and correcting errors you spot on your credit report.

3. See if it pays to tap your home equity

There may be aspects of your home you’ve been waiting to improve, like your ancient bathroom fixtures or your unfinished basement. In recent years, home equity loan rates were elevated. But in light of the Fed’s big September rate cut, you may find that you’re able to get a better rate on a home equity loan. So it could be a good time to move forward with renovations if you can afford them.

Of course, you don’t only have to use a home equity loan for improvements, repairs, or other items related to your home. Home equity loan proceeds can be used however you want.

But remember, tapping into your home equity is a big deal. If you fall behind on your home equity loan payments, you could eventually risk losing your home. So if you’re going to borrow against your home equity, it should be for a good reason.

Finishing a basement or renovating your master bathroom to improve your everyday quality of life counts in that regard. But taking out a home equity loan only to use it on a vacation isn’t necessarily the wisest choice.

Remember, the Fed’s large September rate cut has the potential to help your finances. And with more rate cuts likely in store, you may find that you’re able to save even more on an auto loan or home equity loan if you hold off a bit longer. But you don’t want to delay opening a CD if doing so is on your radar, since future cuts are only likely to result in earning a lower interest rate on your money.

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