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Fed Rate Cuts – Time to Act November 2, 2007

Posted by pf in Expenses and Savings.
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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.

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