Fed Emergency Rate Cut…I Made a Move January 23, 2008Posted by pf in Expenses and Savings.
Tags: Bernanke, CD, certificate of deposit, emergency rate cut, fed, Fed chairman, Federal reserve, interest rate, rate cut
This morning, the Fed cut rates by three-quarters of a percentage point to 3.5 percent, due to the weakening economic conditions and worries about a recession. A week ago, I had submitted a post entitled “Maximize Returns on Cash Now!” based upon the expectation that the Fed would be cutting rates during their regularly scheduled meeting at the end of this month. You may also recall my similar warning in early November, “Fed Rate Cuts – Time to Act” where I had made my first CD with just over half of our available cash.
Surprise!! Although I had been spending some time researching both foreign and conventional CDs since then, I don’t think anyone anticipated today’s Fed action. Not to be outdone, I spied a 12 month CD yielding 5.2% APY and called the bank to verify I could still get the rate. I was told that the rate could change any time, but they would give it to me if I came in today (could not open it online).
I went ahead and made the trip. When I got there, the banker showed me a sheet they had received that morning indicating that the rates had changed. Not surprisingly, they were lower by about .15%. I explained that I had called and someone had agreed to provide me the existing rate. Fortunately, we did not have to debate it for very long and they delivered as promised. At any rate, I made this second CD for $50K which leaves me enough available cash remaining (~$15K) for ongoing expenses, etc.
Although I’m a bit disappointed that I wasn’t able to explore the foreign currency CD more, I’m fairly happy that I’ve locked up a significant amount of cash earning greater than 5%. In hindsight, I wish I had gone ahead and put the whole pile in at the earlier rate (5.65%). Nonetheless, I am satisfied and will be interested to see what happens in the coming month. In particular, I’m being very watchful of interest rates on mortgages. Although I’m very doubtful they will drop enough for me to refinance my current mortgage (4.75%), I can always hope, eh?