There’s no denying that times are tough with the coronavirus spurring concerns all over the world. And while washing your hands and practicing social distancing are crucial preventative measures you can take to protect your personal health and others’, the United States has taken a large step of its own to safeguard the health of the economy: The Federal Reserve Board (Fed) cut the national interest rate twice in the last month, first by 0.50%, or 50 basis points, and now it sits near 0.
If you’re wondering how the rate change and current market volatility will affect you and your finances, you’re not alone. As your ally, we want to help you feel as confident and in control as possible during uncertain times. That’s why we put together a wealth of resources and steps you can take to help give your savings, investments, and mortgage a temperature check — and give your finances the best shot at staying healthy.
Step one: Stay calm.
The Federal Reserve System, the central bank of the United States, sets the federal funds rate, which is the rate at which banks lend money to one another and is used to help determine rates on mortgages, auto loans, and other types of loans. Periodic raising or lowering of the Fed’s rate is normal and typically part of a strategy to help against things like inflation or deflation. And while seeing changes like the recent rate cuts can definitely be surprising, it’s not a reason for panic. Learn more about the federal funds rate and how to keep interest rate changes in perspective.
Step two: Know your options.
Check in with your financial institutions to find out what steps they’re taking to support you during this time. At Ally, we have a COVID-19 relief package to support customers, employees, and communities. “We recognize there has never been a more critical time to deliver on our promise to ‘do it right,'” said Ally Chief Executive Officer Jeffrey J. Brown. “When we all do our part, we help create stronger and more resilient communities that benefit us all.” Here are the details of Ally’s COVID-19 relief package (applies from March 18, 2020):
- Defers payment for auto customers up to 120 days
- Defers payment for mortgage customers up to 120 days
- Gives new auto customers the option to delay first payment for 90 days
- Waives all fees related to expedited checks and debit cards, overdrafts, and excessive transactions on savings and money market accounts for bank customers through 7/18/2020
- Pledges $3 million in financial aid to local communities and organizations
For more on how we’re responding at Ally, visit this webpage.
Step three: Check up on your savings — and adjust your strategies.
When it comes to your savings, the rate cut may leave you feeling discouraged. And we get it — nobody wants a lower annual percentage yield (APY). But it’s important to remember you can utilize plenty of other savings tools, technology, and fixed-rate products (like Certificates of Deposits, or CDs) to keep your money working for you, even if interest rates aren’t at their finest. And recall that if you store your savings at an FDIC-insured institution, your deposits are insured by the FDIC up to the maximum allowed by law.
Take a look at these strategies that can help you continue to pursue your goals, no matter the economic climate:
- Check out Tess Wicks’ 7 Effective Strategies despite changing interest rates.
- Weigh the pros and cons of CDs and decide if they are right for you.
- Check in with your family budget — try the 50/30/20 plan, which is easy to set up, follow, and maintain.
- Take advantage of these smart savings tools designed to help your savings grow faster.
Step four: Revisit your investments and risk tolerance during market volatility.
Along with the Fed’s rate cuts, you’ve probably noticed quite a bit of volatility in the stock market since the coronavirus began to spread. If you’re looking for some insight into the current market, here’s our take on what’s going on, and what may be to come. Read Ally Invest chief investment strategist Lindsey Bell’s perspectives:
- Fed’s Emergency Rate Cut
- Coronavirus Correction
- Investing During a Volatile Stock Market
- Don’t Fear a Bear Market
- Fed Cuts Interest Rates a Second Time
It can be a nerve-wracking time to be invested in the market, but it’s important to try to keep your emotions in check and your eye on your goals. Now is as good a time as ever to reevaluate and reassess your investment strategy. And while you’re at it, try out these strategies for keeping cool under market pressure:
- Learn how to ride the ups and downs of market volatility, preventing it from ruling your investment strategy.
- Take simple actions to endure stock market dips with your wits (and portfolio) intact.
- Think about adjusting your strategy to include some less risky, more conservative ways to invest, like with a cash-enhanced robo portfolio.
- Consider these questions about your retirement portfolio.
Step five: Don’t forget about your mortgage.
If you’re in the market to buy a new home or currently have a mortgage, the rate decreases may actually be good news for you. That’s because they could translate to a lower interest rate on your current or potential mortgage. Learn more about how the Fed’s rate changes impact homeowners.
If you have an adjustable-rate mortgage (ARM), you may see your interest rate decrease in tandem with the federal funds rate. The rate change won’t affect you if you have a fixed-rate mortgage — but that doesn’t mean you are exempt from taking advantage of it. This may be a time to consider refinancing to a lower interest rate.
Step six: Keep an eye out for scams.
With the rise in anxiety and uncertainty, you may have heard there’s also been an increase in scam efforts, as cybercriminals attempt to take advantage of people’s worried states of mind. It’s important to stay alert as you receive emails and phone calls from your financial institutions and other service providers and even as you engage on social media. Here are a few things you can do to remain vigilant during this time:
- If someone asks you to provide personal information, like a password or Social Security Number, be cautious. If asked for multiple pieces of information, like name, address, SSN, birthdate, etc. — consider this a red flag.
- If you receive an email, look for misspellings in the domain name or poor grammar in the messaging. Instances of either can be a sign of a scam.
- If you ever feel suspicious while speaking to a representative, hang up and call a phone number you find independently, like on the business’s website.
- If someone approaches you by phone, email, or social media with an opportunity to earn money with very little effort, be skeptical. This is usually tied to a direct fraud scam or profit-making scheme.
- If you think you may have fallen victim to a scam, contact the business to let them know. Depending on the severity of the scam, you may also need to contact the Federal Trade Commission (FTC) or credit bureaus.
Step seven: Take a break from your finances.
As you start to figure out your next steps in these turbulent times and adjust to the current environment of social distancing, you might find yourself feeling anxious or lonely. So, while you navigate your new normal, it’s important to prioritize your well-being, both physically and mentally.
If you find yourself feeling overwhelmed, take a step back. Maybe that means getting some fresh air every day, whether it’s a hike in the morning, a walk around the block during your WFH lunch break, or a bike ride in the evening. Take a break to call your loved ones using FaceTime or other communication technology. Try a new hobby, bake something, read a book, or stream your favorite TV show for a few hours.
What’s important here is that you take time to relax when you can, especially as we continue learning more about the total impact of the coronavirus. We know that economic uncertainty can be unnerving, but by taking some time to check on your savings, investments, and mortgage rate, you can spend less time worrying about your financial health and more time taking care of what really matters: you, your family, friends, and neighbors. And through all the uncertainty, we want you to know you have an ally in us. We’re here to keep you updated with the information you need to know, and the tools and resources to help.
Originally published March 9, 2020
Updated on March 20, 2020