Since September of 2007, the Fed has cut the Federal funds rate by one point from 5.25% to 4.25%. Prior to these cuts, the rate had remained unchanged for a little over a year. As the stock market continues to struggle and with talk about the slowing economy, many experts believe that rates will be cut yet again later this month. It isn’t clear yet how big the cut will be, but it is almost certain that rates will decrease at least once this quarter. What do these interest rate cuts mean for you?
Good for Debt, Bad for Savings
Lower interest rates are good for borrowing money since it means that you will be paying less in interest. The bad news is that the Fed rate cuts don’t directly translate into lower rates for consumers. These cuts can take many months before the effects are felt on your bottom line, but you can begin preparing for these cuts now. Once you can begin to benefit from the lower rates, you’ll have more money in your pocket.
While lower interest rates saves money when you borrow, the opposite is true when you are saving money at the bank. As interest rates fall, the rate of return on your checking and savings accounts will likely follow suit. If you have been enjoying a nice savings rate of over 4.5% for the past year or so, you can expect this to change. If you can, make sure you’re getting the best rate possible and explore other banks to ensure you’re getting as much interest on your savings as you can.
