What Federal Reserve interest rate cuts could mean for borrowing, saving
The Federal Reserve cut the federal funds rate to between 3.75% and 4%.
Although the change dictates the interest rate at which banks can borrow from and lend to other banks, the decision will affect consumer products such as credit cards, mortgages, auto loans, student debt and savings accounts, according to a news report from CNBC.
Experts cited in the article detailed that credit card interest rates are often variable and are expected to lower as a result of the federal funds cuts. They stated that these rates are already higher than in previous years — averaging more than 20%. Because they’re long term and tied to Treasury yields and the economy, mortgage rates will likely experience minimal short-term changes from the cuts unless they’re adjustable-rate mortgages or home equity lines of credit that see a more immediate impact. Nonetheless, further declines in the federal funds rate could apply downward pressure to mortgage rates. Similarly, the federal funds cuts may not reduce auto loan rates but could encourage automakers to introduce financial incentives in the holiday season.
The experts noted that student loan borrowers may be able to refinance to secure a lower rate as the federal funds rate declines; however, because the student loan rates reset on July 1 every year, borrowers will have to wait to see changes take effect. They cautioned that switching from a federal to a private student loan could force borrowers to miss out on benefits like more appealing deferments and forbearances as well as income-driven repayment plans. The experts indicated that the federal funds cuts will reduce high-interest savings account and certificate of deposit rates. As a result, individuals looking to save should lock in higher rates as soon as possible.
Read more: CNBC
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