I Asked a Financial Planner What to Do When Interest Rates Drop

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• I asked a financial planner if I should take money out of savings if interest rates fall.
• He said I shouldn’t rush to withdraw money, but it’s worth looking for a higher income.
• ETFs and mutual funds provide good long-term returns, and CDs are also a good option.

Recently, I sat down and did a mid-year financial audit. I noticed that over 65% of my money was still sitting in a high-interest savings account. Financial professionals have told me that keeping money in a savings account is not the best strategy.

Instead, they shared that it would be best to just stash three to six months’ worth of expenses there. I didn’t feel ready to follow their advice, especially since my high-interest savings account at Ally Bank was offering 4% to 5% APY on the money in that account.

The Federal Open Market Committee will meet in late July to assess current economic conditions. The committee could decide to cut interest rates, which would affect savings accounts, loans and mortgages.

If that happens, it might make sense for me to move money out of my high-interest savings account. I spoke with certified financial planner Jake Skelhorn, who shared three things I could do with that cash if interest rates fall.

1. You don’t need to rush to take the money

I told Skelhorn that I was comfortable having some cash in a high-interest savings account. As a solopreneur with variable income, I wanted to keep more than three to six months’ worth of expenses in that account.

He said that even if interest rates started to fall, I shouldn’t rush to take my money out of that account.

“If the primary purpose of the money in your high-interest savings account is easy access in case of an emergency or short-term expense, like a vacation or a down payment, it’s fine to keep the money there,” he says. “The high interest rate is a risk-free bonus. If the interest rate drops, it shouldn’t affect your overall goal with the funds.”

2. Reassess your liquidity needs

However, Skelhorn said that if I Do want to move some money so that my high-yield savings balance doesn’t exceed what I need for an emergency fund, it might be time to invest that excess cash.

“While it’s nice to get a guaranteed 5% or more from a high-yield savings account, investing in the stock market through ETFs or mutual funds will typically give you a better long-term return for goals like retirement,” he says. “While more volatile from year to year, the stock market has averaged about 10% returns, which is about double what you’d get in a high-yield savings account right now.”

3. Consider similar low-risk alternatives

I told Skelhorn that I was willing to invest some of the cash in my high-interest savings account, but I also wanted to keep some somewhere low or medium risk.

He says that if some or all of the money in my high-yield savings account will be used for a specific expense at a specified date in the future, I might want to consider CDs and Treasury bonds for high interest rates with low risk.

“For example, if you know you won’t be in the market for a home for at least a year, you can buy a 1-year CD and know that you’ll get that interest rate no matter what,” he says.

After talking to Skelhorn, I decided to go with a strategy I felt comfortable with. I would put about six to nine months of expenses in my high-interest savings account, regardless of the interest rate, invest some of the remaining money, and put the rest in CDs for now.