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By Claire Hegstrom
The coronavirus pandemic is causing much more than a health scare across the United States and the world. News of stock market and interest-rate drops are inescapable, leading to concerns about what the future holds financially. Unfortunately, deposit rates will likely continue to be volatile as the Fed adjusts rates in reaction to the economic downturn. Although this can be alarming in the moment, we want to help you to step back and take a calm and collected look at your financial health so you can better understand what these economic changes mean for you and your family.
Think of the Federal Reserve as the bank that supplies other financial institutions with money. The Fed sets the Fed Funds rate, the rate that banks and credit unions charge each other for short-term loans. Credit unions and banks then set their saving and lending rates on several factors, one of which is the Fed Funds rate.
The Fed meets every six weeks (they can meet more frequently for special circumstances) to reevaluate the Fed Funds rate based on economic indicators. Rates go up and down, depending on the economic conditions the Fed observes. Currently, the Fed has moved aggressively to lower rates.
This is completely up to you. If you’re fine with your savings rate taking a temporary dip, you can leave your money where it is. This is the best option for people who want to be able to access their funds right away. If you’re not looking to spend a portion of your savings within the next year, you could lock in a higher rate now with a certificate, knowing that if you need it in case of an emergency, you’d face a withdrawal penalty.
Most importantly, don’t panic. We are all in this together, and we can weather this storm like we did the Great Recession of 2008, when the stock market took a huge beating, but ultimately recovered to reach new highs.
And here’s another important fact you might not know: In the 170+ years that credit unions have been around, never once has a credit union received a federal bailout. Your funds are federally insured up to $250,000 by the National Credit Union Association (NCUA). While you have some short-term decisions to make, rest easier knowing your money is safe, and will continue to be protected.
Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.
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