Money Market Rates Increase (finally!)

After over a year of plummeting interest rates, it looks like the trend has finally come to an end.

Last month, the Federal Reserve cut interest rates by 0.25%. Normally this would trigger a proportionate decrease in deposit rates. However, over the last month, the average money market rate has INCREASED 0.15% from 2.20% to 2.35% (according to Bankrate national data).

In addition, I just got word that ETRADE bank has lifted their online savings account rate from 3.01 to 3.15% APY. This is the first time in the last year that a major online bank has raised rates.

Why higher rates are right around the corner

• The Federal Discount rate is already at 2.00%… How much lower can it get?
• Economists predict that interest rates will stay steady until early 2009, and then begin to slowly increase.
• For the SHORT TERM, the US stock market has bottomed out because the Fed has demonstrated (with their bailouts, liquidity injections, and rate cuts) that their main priority is to keep equities afloat. Nevertheless, some experts will speculate that the credit crunch will hit the US again in late 2008 or early 2009.
• Inflation is becoming an increasingly widespread problem, and the Federal Reserve cannot ignore it forever. Gas prices are at all time highs. Food is getting more expensive.

What should you do?
Rates should inevitably begin to rise in the next few months. Avoid long term CD (certificate of deposit) accounts because you don’t want to get locked into a low rate. Stashing money away in a high interest savings account is a good bet because it looks as if rates can only increase from here on out.