Key takeaways
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Falling interest rates can reduce returns on savings and can cause anxiety for many.
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Financial concerns can lead to anxiety, but being proactive can help.
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Understanding how to increase savings in a lower rate environment can ease financial worries.
Falling interest rates can translate to lower returns on savings accounts, sparking worry for many savers who rely on interest income or who are concerned about financial growth. Roughly two-thirds (65 percent) of all U.S. adults who say money negatively impacts their mental health said it was caused by economic factors, according to a Bankrate’s recent Money and Mental Health Survey.
Financial anxiety, especially during an uncertain economic period, is common but manageable. Here’s how to manage your money worries during a falling rate environment.
The current rate environment
The Federal Open Market Committee lowered the federal funds rate by 50 basis points, or half a percentage point, during its September 18 meeting. Many financial institutions responded by reducing deposit account rates. Consequently, there has been a gradual shift toward a lower rate environment.
This follows aggressive rate increases in 2022 and 2023 to counter inflation. Now, the Fed is signaling that further rate cuts could be on the horizon. While this helps borrowers by lowering loan costs, it’s not as favorable for savers, who see reduced yields on their savings accounts and certificates of deposit.
“Low interest rates stimulate economic growth by reducing the cost of borrowing for investments in both physical assets and financial markets,” says Ohan Kayikchyan, Ph.D., CFP, founder of Ohan The Money Doctor. “While low interest rates have benefits, they also have downsides. Lower borrowing costs mean that people who save money in banks earn less.”
How money worries affect mental health
Financial stress and anxiety can significantly impact mental health. A Bankrate survey found that nearly half (47 percent) of U.S. adults say money has a negative impact on their mental health, at least occasionally, causing anxiety, stress, worrisome thoughts, loss of sleep, depression or other outcomes.
Furthermore, findings from Primerica’s third quarter Financial Security Monitor revealed nearly half (43 percent) of respondents feel “discouraged” about their finances.
“The pressure to meet financial obligations can create a cycle of worry, impacting personal relationships and overall quality of life,” says Kristie Tse, a licensed mental health counselor and founder of New York-based Uncover Mental Health Counseling. “Real-life examples include clients who suffer from panic attacks during economic downturns, or those who experience depressive symptoms when unable to meet financial goals.”
The link between money and mental health is clear. When you don’t feel in control of your finances, your body’s stress response is activated. Over time, this stress can lead to mental and physical health concerns. This is why it’s important to be proactive and take steps to take care of your emotional and financial well-being.
Ways to manage financial anxiety as interest rates fall
If you’re feeling anxious about falling rates, don’t despair. There are ways to manage your feelings and protect your money.
Focus on financial goals, not just rates
By focusing on long-term goals rather than rate fluctuations, you can shift your focus from reactive to proactive. Instead of dwelling on today’s rates, focus on goals such as building an emergency savings fund, saving for retirement, or buying a home.
Build an emergency fund
Building a financial cushion can reduce rate anxiety. Bankrate’s Emergency Savings Report revealed that more than 1 in 4 people (27 percent) have no emergency savings and over half of Americans are uncomfortable with their level of emergency savings. This likely contributes to financial anxiety.
Most experts recommend saving at least three to six months’ worth of funds. This will provide a safety net in the event of a medical emergency, layoff or other financial crisis.
Conduct a monthly financial check-in
Set aside a time each month to review your finances and goals so that you can monitor progress without overreacting to market shifts. Focus on how much you’re spending and saving so that you can identify areas for improvement.
Seek professional advice
Whether through a financial counselor or therapist, getting outside support can help ease financial anxiety. In a lower-rate environment, professional insights can keep worries in check.
“Consider speaking with a financial advisor or counselor who can offer personalized advice and strategies tailored to your situation,” says Dr. Shairi Turner, chief health officer at Crisis Text Line.
If you decide to see a mental health professional, consider someone who specializes in financial therapy. You can find a financial therapist through the Financial Therapy Association.
How to save money in a declining rate environment
One way to get a head start is to automate savings. Consistent contributions add up over time and can help you build a buffer regardless of the interest rate.
Another way to get control of your finances is to audit your expenses and cut back on spending. Assessing your monthly expenditures can reveal savings that can be directed into your emergency fund.
In addition, make high-yield savings accounts a priority. While yields are on the downtrend, high-yield savings accounts still offer better returns than standard accounts. As of this writing, one of the top APYs among the banks Bankrate monitors is 5.15 percent, offered by Brio Direct.
Best savings accounts during a lower rate environment
In addition to a high-yield savings account, consider a CD ladder. By spreading investments across terms, you maintain flexibility and keep your money growing if rates begin to shift upward.
Also consider a money market account. If you prefer a stable, liquid option, money market accounts can offer slightly higher rates and keep funds readily accessible.
Bottom line
It’s possible to manage money anxiety in a falling rate environment when you focus on personal goals and adapt your financial plan as rates shift. A proactive approach will help you prepare your finances and soothe anxious feelings.