An advisor recommends that investors maintain liquid emergency funds even after the Fed's interest rate reduction.

• The Federal Reserve's policy change may result in lower future returns on savings, certificates of deposit, and money market funds after years of higher yields on cash.
• Financial experts advise investors to maintain liquid emergency funds, even if interest rates decline.
• Kathleen Kenealy, founder of Katapult Financial Planning, stated that it's not advisable to jeopardize your safety net.

The Federal Reserve's policy change may result in lower future returns on savings, certificates of deposit, and money market funds after years of higher yields on cash.

Financial experts advise investors to maintain liquid emergency funds, even if interest rates decline.

It is recommended to maintain a cash reserve of at least three to six months in case of emergencies, such as job loss. However, the threshold may vary based on individual circumstances.

Kathleen Kenealy, founder of Katapult Financial Planning in Woburn, Massachusetts, advised keeping those funds in high-yield savings or a money market fund, said certified financial planner.

"Your safety net is important to you," she stated.

It's a great time to shop around for the best returns on cash after the Fed rate cut. The tax extension deadline is Oct. 15. If you still can't pay, here's what to do. You can't refinance a mortgage to capitalize on lower rates if you can't pay.

The Fed reduced its benchmark interest rate by half a percentage point last week, marking the first rate cut since early 2020. This move affects banks' ability to lend and borrow from one another, ultimately impacting consumer loans and savings rates.

Despite a slight decline in top yields, many savers are still obtaining relatively high rates on cash.

According to Deposit Accounts, the average savings rate for the top 1% was near 4.75% and the highest one-year CDs were over 5% as of Sept. 25. Meanwhile, the largest retail money market funds were still paying around 5% as of Sept. 24, according to Crane Data.

If you've been earning 4% to 5% on emergency savings, you may experience a "small reduction" in the short term, advised Kenealy, who suggests keeping emergency funds in their current location.

Don't put your emergency fund at risk

It may be tempting to invest emergency savings into higher-paying assets after the S&P 500 reached a 52-week high on Sept. 25, following several months of stock market gains.

It is advised not to invest your cash reserves, as experts suggest that short-term savings, particularly funds that may be required within the next year, should remain out of the market.

CFP Shehara Wooten, founder of Your Story Financial in Fairborn, Ohio, advised against putting emergency funds at risk.

If you face a job loss or major car repair, you need to have easily accessible cash. Otherwise, you may have to sell your emergency funds when the stock market is down, she advised.

Wooten advised against making hasty choices based on the current situation at the Federal Reserve.