It is quite amazing how market psychology can turn on a dime, but it did with the employment numbers today. Every analyst on CNBC now says that "the picture has darkened considerably."

In a global recession, the stock market will be a bad place to be so it is a bad time to put new money to work. So where can you put your cash.

It becomes clear that the Federal reserve will now lower interest rates, maybe multiple times or maybe one large cut. If you believe that the recession will be pronounced, then you buy long term Treasuries, but I believe that this will be very short-lived. Therefore, I am looking for a place to put my money where it will continue to earn interest that keeps the money at a pace with inflation.

Savings accounts will have falling yields as will money market funds. Therefore, it is important to lock down some nice rates for a short period.

The 1, 2 and 3 year CD rates on BestCashCow.com seem amazingly attractive at the moment. I recognize, however, that these rates are being offered by institutions like Countrywide and E-Loan because they are the lowest cost of funding their mortgages (they lack liquidity) and that these companies are also in jeopardy. While it is important to chase yield, it is important not to be foolish and risk enormous life-changing losses. Therefore, I am being very careful to keep keep my deposits below FDIC limits - spreading my money across several online banks listed here and setting up every account as a joint account with my wife in order to raise FDIC limits to $200,000 (as long as neither of us have other accounts with these banks and neither of us do).

With many predicting that the Fed is going to lower the federal funds rate, now might be the time to lock-in a decent rate on a 1or 2 year CD. It’s possible the mortgage crisis could deepen and if it does that would force the Fed to cut further, leading banks to reduce the rates they pay on CDs and savings accounts.

When the stock market bubble popped in 2000, the Fed cut rates from 6.5% to a low of 1% and the yields on CDs and Savings Accounts went down with it. The average yield on a 1-year CD was only slightly above 1% four years ago, compared with yields of over 5.5% today.

The Fed today cut the discount rate to 5.75% sending the message that it to is worried about credit markets. The discount rate is the rate that commercial banks and other depository institutions are charged on loans from regional Federal Reserve offices. In general, banks try to limit their use of Federal Funds because it is generally more expensive than obtaining cash through customer deposits or other means.

Interestingly, I noticed on BestCashCow's rate tables that several large mortgage lenders (Countrywide) have significantly increased the rate they are paying on CDs and savings accounts in an attempt to bring in depositor money. Notice that even these top rates are below the Fed Discount rate.