Federal Reserve Has No Plans to Raise Interest Rates Any Time Soon
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Federal Reserve Has No Plans to Raise Interest Rates Any Time Soon

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The Federal Reserve has left the Fed Funds rate at zero to 0.25%, and projected no plans to raise interest rates through 2022.   The good news is that it is still not considering negative interest rates in the US.

It is projecting a 6.50% decline in US GDP in 2020.

The Fed sees inflation well below its 2% objective and it sees unemployment at extraordinarily high levels so there is no pressure whatsoever to raise rates.   Meanwhile, it remains committed to using all sorts of tools involving its lending programs in order to avoid a collapse in the economy.

Against, this backdrop, it is very difficult to say that cash is exciting.   It is safe, it is stable, and it is still going to be trading at face value plus interest if the market loses half of its value as this Coronavirus-induced economic crisis continues.   But, compared with the performance of the stock market over the last several months, it is hard to make a compelling case for cash and holding large amounts of it carries the risk of a devaluation of your purchasing power.   I suggested recently that folks might want to resist the temptation to go completely into cash, even as the economy deteriorates.

There is another temptation that I also suggest that folks resist and that is the temptation to give up on cash and accept zero returns.   All major online banks are still offering yields of over 1%, and 1% is better than zero, especially when you factor in the value of compounding interest rates over time.   We received notes from lots of folks who were excited about earning 2.50% instead of 2% this time last year, and while savings and money market accounts feel like trash now, it is just as important in this environment that your cash resources are earning as much they can.   You can compare online savings rates here and you should also continue to check local savings rates where you live, here.

Savings alternatives that may preserve the value of your cash while giving you access to something else of value, instead of interest, could be particularly interesting to those whose primary goal is to preserve capital.   Bask Bank is offering an account that pays interest in the form of American Airlines AAdvantage miles at 1 point per dollar on deposit per year.   Bask Bank also offers bonuses that could total as much as 42,000 American AAdvantage points if you maintain a balance over $100,000 for over a year.   Since these bonus are due to expire at the end of June, I think that this is a good time for anyone planning to travel again in the future to look at accumulating miles through this program.   Learn more about Bask Bank's offer here.

While this remains a difficult time for savers, I’d encourage folks to look at remortgaging and home equity options, if they are at all inclined.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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