The Writer’s Coin

So the FED cut its rates again because it’s trying to stimulate the economy and avoid a recession. Usually, that means stocks go up and the savings rate you get from high-interest banks like ING Direct go down (again).

For an interesting read on the FED and how our economy rewards risk taking without holding these guys accountable when they fail (the sub-prime disaster being the latest chapter), check out this week’s New Yorker. Also check out When Genius Failed, which will make you shake your head about what’s happening with the sub-prime thing today—it’s all happened before.

Anyway, some people want to know what you should do in response to the cut in rates.

Here’s a sensible, novel idea: NOTHING.

If you’re a responsible investor, you should know by now that you can’t time the market. It’s useless to even try. Same goes with trying to predict which bank is going to have the higher rate. Unless you have close to the maximum FDIC-protected amount in your savings account ($100,000), a fraction of a percentage point isn’t going to make a difference.

It doesn’t matter which bank you use to automatically set up transfers. It doesn’t matter where you choose to build up your emergency fund. It doesn’t matter where you put the extra money you make after creating and following a responsible budget.

What matters is that you’re saving money. Even if your savings account was a paltry 0.5% (what my Bank of America account gets) and you were tossing money in there like crazy, you’d be way ahead of the game. Of course, it doesn’t hurt to open an account that has a savings rate three points higher than that. After all, I made around $250 in interest with ING in 2007. That’s free money.

A lot of beginners get caught up in these kinds of minute details. I understand the yearning to “pick the right place” or go with “the best company,” but most of the time the difference is negligible and as long as you’re actually saving, investing, budgeting, and so on, you’re on the right track.

When this kind of stuff happens (FED cuts its rates), just be aware of why it’s being done (to try and stave off a recession) and how it may affect you. It’ll give you a quick economics lesson and you’ll know why there are so many newspaper articles and blogs talking about the “FED rate.”

Instead of putting so much thought and effort into which bank has higher rates today and how much money you could potentially save from going HSBC over ING, go to your budget and see if you can’t trim it by another $15–$20 instead. That’s a much better use of your time and will affect how much money you save a lot more.

Other than that, try to ignore the noise.

Here is a word from our Friends:
Not happy with your current mortgage rate? With our economy in its current state, a home mortgage refinance might be a good idea for you. Don’t get stuck with mortgages you can’t afford.

Tags: fed rate cut, ing account, saving