How the Fed’s Decision to Keep Interest Rates Low Affects Your Wallet


Federal Reserve Chairman Jerome Powell speaks at a virtual press conference in Tiskilwa, Illinois, on December 16, 2020.

Daniel Acker | Bloomberg | fake images

The Federal Reserve on Wednesday kept its benchmark interest rate at zero to continue supporting the economic recovery from the coronavirus pandemic.

The decision comes just days after the $ 1.9 trillion American Rescue Plan was enacted, adding even more stimulus to boost the US economy.

Plus, vaccinations are on the rise: More than 110 million Americans have received the Covid-19 vaccine so far, according to data from the Centers for Disease Control and Prevention. And more adults will be eligible to get vaccinated soon. In a March 11 speech, President Joe Biden called for all states to make all adults eligible for the vaccine by May 1.

Still, even with the economic recovery underway, the central bank is committed to supporting the rally. That means historic low rates are likely to stick around for a while. The Fed indicated Wednesday that it is unlikely to raise interest rates until 2023.

“This time they will hold their ground and not raise rates prematurely,” said Robert Frick, corporate economist at Navy Federal Credit Union.

While the federal funds rate is not what consumers pay, but rather what banks charge each other for short-term loans, it does have an impact on what you pay for various types of credit.

A good time to refinance a mortgage

Consumers can save money by refinancing existing debt for a lower rate. For example, mortgage rates, which loosely follow the 10-year US Treasury bond, were one of the beneficiaries of the Fed’s rate moves last year.

Still, mortgage rates have spiked higher in recent months after hitting record lows, putting some pressure on anyone putting off refinancing to do so soon.

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“If you put off refinancing, it’s time to act now,” said Greg McBride, Bankrate’s chief financial analyst.

Even if the all-time low was missed, it’s important to remember that current mortgage rates are still big business, Frick said.

“People have been spoiled by borrowing below 3%,” he said. Tuesday’s popular 30-year fixed-rate mortgage had a rate of 3.38%, according to Mortgage News Daily.

You can also refinance other loans

Beyond mortgages, people can also save by refinancing auto loans, something that is often overlooked, according to Frick. For those with the best credit scores, rates on a new car loan can be as low as 4.08%, according to Bankrate.

“It doesn’t take as long as refinancing a mortgage,” Frick said. “If you can save $ 1,000 just by getting a little or more paperwork, then you definitely should.”

Additionally, new credit cards may have lower interest rates and banks may grant lower rates on personal loans, according to Tendayi Kapfidze, chief economist at LendingTree. For borrowers with excellent credit, average personal loans are between 10.3% and 12.5%, according to Bankrate.

“Lenders got very conservative last year, but that started to slow down a bit,” Kapfidze said.

That means people could potentially save by consolidating credit card debt or paying it off with a lower rate personal loan.

Those with student loan debt can also take advantage of the environment and refinance for a lower rate. However, this is only a good idea if you have private loans that the lender has not stopped; Federal loans are currently deferred due to the coronavirus pandemic.

“Act now, because if you don’t, you’re leaving money on the table,” Kapfidze said.

A moment for personal finances

Low interest rates are certainly not good for everyone, especially savers, Frick said.

In fact, traditional banks generally offer savers an average annual percentage return of 0.7% for deposit accounts, while online bank rates tend to be slightly higher.

However, some consumers may be in a unique position to review their balance sheets in the coming weeks given the low rate environment, the looming third round of stimulus, and the fact that it is tax season, which means that refunds are also on the way to many Americans.

Act now, because otherwise you are leaving money on the table.

Tendayi Kapfidze

LendingTree Chief Economist

“For a lot of households, they’ll get one, maybe two big windfalls here in the next few weeks,” McBride said. “They are two great opportunities to make remarkable advances in your finances.”

This probably wouldn’t affect those who have been hardest hit by the pandemic and have struggled to survive, Frick said. But those who have kept their jobs and been able to cut expenses could have a great opportunity to restore their finances by paying off debt and boosting savings.

“That’s a game changer,” he said.

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