Fed Rate Cuts – Time to Act November 2, 2007Posted by pf in Expenses and Savings.
I would like to believe that as I grow older, I invariably become at least somewhat wiser? More specifically, I have noticed in the past year that I am having a lot of feelings of deja vu as I watch the financial markets. For example, when we bought our first house, we financed a 30-year conventional mortgage at just over 8%. In the subsequent years after our initial purchase, the Fed cut interest rates to stimulate the economy whereby I eventually refinanced our house at 15 years for less than 5%. In the end, the payment was almost exactly the same as what we started with…but I had cut the time in half!
Similarly, at that time, we also watch the rate of return on our cash go from a high of just over 6% to something like less than 1% (I truly think it really went that low). After some time, the economy heated back up and interest rates started to rise again. As of a few weeks ago, the interest rate in my cash account was almost 5.5%. After the first rate cut, it went down to 5.2%. Now, after this week’s most recent rate cut, I’m expecting it go down yet again.
So, feeling like I had seen this picture before, I decide to act and opened up a 1 year CD at 5.65% with Countrywide Bank. Interestingly, I had intended to act sooner on a 5.75% rate with a local bank, but had missed the opportunity as I did not get to opening it up until the after had expired. I was not going to miss out on it this time and just today funded it with about half of our available cash ($60,000). The primary reason I did not do more is that the top interest rate for our cash account is achieved only when you have greater than $50K in there and there is still an outside chance we may want to begin building a house within the next year. By splitting the two, I retain some flexibility while still trying to maximize the rate.
Unfortunately, I just checked the website for Countrywide and the CD rate has also expired (now 5.2% for 12 mos). For those of you who do not need your money anytime soon, I would strongly suggest looking to lock it up in a CD at today’s interest rates before they drop any further.