Financial Tip: Fed Rate

In case you haven't heard by now, the stock markets around the world fell badly today. Just take a look the picture on the left here (Jan. 22, 2008 from L.A. Times), and you can see that some markets fell by double digits. In my perspective, there probably was a lot of pressure on the US to respond to the sliding economy.

In the past few week, there was a speculation that the Fed will lower the rate sometimes soon. The original plan was to lower the rate around the end of January. Today, this downward spiral forced the Fed to cut 3/4 of a percent, one week ahead of the original plan. There is another rumor that the Fed might more another cut within the next two weeks.

After all the news, what does this mean for you and me? For your portfolio, the rate cut is a good thing, because it boosts market value. Although, I believed this is only temporary, and another slide will come again. For your Checking Account and Savings Account, lowering rate is a bad thing, because the bank will also lower the interest rate.

So, how do you improve your situation in this economy? The stock market is volatile, so stock market is a very risky option. The safest bet is a long term, high interest CD account. If you are not in a financial situation, put part of your money into a high interest CD in a reliable bank. I said a reliable bank, because unstable banks could go down anytime (just look at how Washington Mutual, E*Trade, and Countrywide Financial almost went bankrupt). In addition, pick FDIC insured banks, which covers $100,000 per person, per insured bank. Spreading your money into multiple banks is not a bad idea also.

However, if you choose to stay with a Savings Account, you can still get a 4% APY. Currently, ING Direct is offering a 4% Savings Account, and 3% Checking Account. However, it only through online, which can be a bit inconvenient.

Link:
* ING Direct Orange Savings Account
* FDIC Insurance
* BankRate