After selling your home in 2022, you’ve been renting and storing your belongings, which incurs substantial monthly expenses. With over $1 million in savings from the sale, currently placed in high-yield money-market accounts earning 5.3% and a CD at 5.4%, you’re facing a dilemma. The concern is that a potential Federal Reserve rate cut might reduce the returns on these high-interest accounts, potentially disrupting your budget if expenses exceed income.
Given the need to keep funds liquid for a future property purchase, you’re considering whether to move your money. Short-term CDs with rates above 5% are appealing but come with uncertainties about future rates and safety. Although you meticulously check the stability of financial institutions, some current deals remain uncertain.
In times of economic shifts, like those influenced by the Federal Reserve’s actions, it’s crucial to weigh both short-term and long-term impacts. Typically, as savings account rates drop, mortgage rates follow suit. Therefore, any immediate reduction in your money-market returns might be offset by long-term savings through lower mortgage rates.
For instance, if you experience a 1% annual drop in returns from your $1 million investment, you could lose around $10,000. However, a 1% decrease in a $750,000 mortgage rate could save you approximately $500 per month, translating to about $180,000 in savings over a 30-year mortgage.
Certified financial planner Raman Singh suggests that while you’re searching for a new home, keeping your money in high-yield accounts remains a prudent choice. This approach protects your principal and ensures liquidity, allowing you to secure a lower mortgage rate when ready to purchase.
As you approach the one-year mark, diversifying your investments becomes important. Blending your funds into a fixed-income portfolio can balance liquidity with potential growth. Ryan Zabrowski, another certified financial planner, recommends evaluating your risk tolerance to align your investments with long-term goals, even if they involve some market fluctuations.
Moreover, ensure your savings are covered by FDIC insurance. With $1 million held at one bank, you exceed the $250,000 insurance limit per account type and institution. Spreading your funds across multiple banks can enhance protection and stability.
By managing your investments wisely and planning for both immediate and future needs, you can navigate economic changes and make informed decisions for your home purchase.
