Preserving your financial health during the coronavirus pandemic

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.

How does a Federal Reserve Board (Fed) rate drop work?

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.

What does this rate decrease mean for me?

1. You may see a decrease in the Annual Percentage Yield (APY) on your savings accounts. This doesn’t mean you are losing money, but it does mean you will earn less interest on your savings funds, so they will grow more slowly. If you have money saved that you don’t need to use anytime soon, this may be a good time to open a savings certificate. Certificates are a great savings tool because the rate stays the same over the life of your certificate (anywhere from one to five years) even if interest rates on regular deposit accounts go down.
2. Now could be a good time to borrow money. If your household is facing a temporarily-lowered income, you may be looking for ways to cut your expenses or come up with more money. Refinancing your mortgage or refinancing your auto loan to a lower rate could save you some serious cash on your monthly payments. A personal loan may also be an alternative to get cash quickly without falling prey to payday loans or other high-interest predatory loans. Unsecured personal loans don’t require collateral to back the loan, and they can range from $1,000 to $50,000. At credit unions like Alliant, these funds can be made available in your account the same day a loan is approved, in most cases.

What should I do with the funds in my savings account?

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.