Managing your financial worries in a low rate environment

Important information

• Falling interest rates can reduce the return on their savings and can cause anxiety for many.

• Financial worries can cause anxiety, but being proactive can help.

• Understanding how to increase your savings can reduce financial anxiety.

A drop in interest rates can lead to lower returns on savings accounts, which raises concerns for many savers who rely on interest income or are concerned about capital growth. Nearly two-thirds (65 percent) of all US adults who say money negatively affects their mental health say it’s because of the economy, according to a recent Bankrate Survey of Money and Mental Health.

Financial worries, especially during an uncertain economy, are common but manageable. Here’s how to manage your financial worries during down times.

Current rate status

The Federal Open Market Committee cut 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 fees. As a result, there has been a gradual transition to a low rate environment.

This follows sharp rate increases in 2022 and 2023 to combat inflation. Now, the Fed is signaling that further tapering may be on the way. While this helps borrowers by lowering the cost of credit, it is not as good as savers, who see reduced yields on their savings accounts and certificates of deposit.

Ohan Kayikchyan, Ph.D., CFP, founder of Ohan The Money Doctor, says: “Low interest rates stimulate economic growth by reducing the cost of borrowing for real estate and financial investments. “Although low interest rates have benefits, they also have problems. Low borrowing costs mean that people saving money in banks get less money.”

How money worries affect mental health

High blood pressure and anxiety can take a toll on mental health. A Bankrate survey found that nearly half (47 percent) of US adults say money has a negative effect on their mental health, at least sometimes, causing anxiety, stress, disturbing thoughts, loss of sleep, depression or other effects.

Additionally, Primerica’s third-quarter Financial Security Monitor survey revealed nearly half (43 percent) of respondents feel “disappointed” about their finances.

Kristie Tse, mental health counselor and founder of Uncover Mental Health Counseling in New York, says: “The pressure to meet financial obligations can cause stress, affect personal relationships and overall quality of life. “Real-life examples include consumers who suffer from panic attacks during a recession, or who experience depressive symptoms when they are unable to meet financial goals.”

The relationship between money and mental health is clear. When you feel out of control of your finances, your body will react. Over time, this stress can lead to mental and physical health problems. This is why it is important to be proactive and take steps to look after your emotional and financial well-being.

Ways to manage financial anxiety when interest rates fall

If you’re feeling worried about falling rates, don’t despair. There are ways to manage your emotions and protect your money.

Focus on financial goals, not just values

By focusing on long-term goals rather than flexibility, you can shift your focus from action to action. Instead of dwelling on today’s bills, focus on goals like building an emergency fund, saving for retirement, or buying a home.

Create an emergency fund

Losing weight can lower blood pressure. Bankrate’s Emergency Savings Report revealed that more than 1 in 4 people (27 percent) do not have an emergency fund and more than half of Americans are not comfortable with their emergency savings. This may contribute to financial problems.

Most experts recommend saving at least three to six months’ worth of cash. This will provide a safety net in the event of a medical emergency, retirement or other financial problems.

Do a monthly financial review

Set aside time each month to review your finances and your goals so that you can monitor progress without overreacting to market fluctuations. Focus on how much you spend and how much you save so you can identify where you can improve.

Seek professional advice

Whether it’s through a financial advisor or a professional, getting outside support can help ease financial worries. In a low-level environment, expert information can manage anxiety.

Dr. Shairi Turner, chief health officer at Crisis Text Line says: “Consider talking to a financial advisor or counselor who can give you advice and strategies that suit your situation.

If you decide to see a mental health professional, consider one who specializes in financial therapy. You can find a financial therapist through the Financial Therapy Association.

How to save money in a low interest rate environment

Another way to start is to save money moderately. Fixed deposits add up over time and can help you build a buffer regardless of interest rates.

Another way to get control of your finances is to review your expenses and reduce spending. Reviewing your monthly expenses can reveal savings that can be directed toward your emergency fund.

Additionally, make high-yield savings accounts a priority. Although yields are falling, high-yield savings accounts still offer better returns than regular accounts. As of this writing, one of the highest APYs among Bankrate banks is 5.15 percent, offered by Brio Direct.

The best savings accounts in times of lows

In addition to a multi-product savings account, consider a CD stack. By spreading investments across levels, you maintain flexibility and keep your money growing if rates start to rise.

Also consider a money market account. If you prefer a fixed, liquid option, money market accounts can offer slightly higher rates and keep cash readily available.

Low profile

It’s possible to manage money worries in a downturn when you focus on your goals and adjust your financial plan as rates change. A practical approach will help you get your finances in order and ease your anxiety.