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https://www.wsj.com/articles/what-the-feds-interest-rate-cut-means-for-you-11583253298


The Federal Reserve cut its short-term benchmark rate by a half percentage point Tuesday morning. The timing of this rate cut, which comes in between the Fed’s scheduled policy meeting, hasn’t occurred since the 2008 financial crisis.

This lowers the federal-funds rate to a range between 1% and 1.25%.

Last year, the Fed cut rates three times to keep the U.S. economy moving amid slowing global growth and trade tensions. This year, disruptions from the coronavirus epidemic has unsettled global financial markets, with policy makers preparing for the economic fallout from the spread of the virus. The Fed’s next scheduled meeting is March 17-18.

Interest rates affect the cost of borrowing, so falling interest rates can ripple through the cost of mortgages, the interest earned on savings accounts and more. Below, a few things to watch for:

Average rate on 30-year fixed mortgage
Source: Freddie Mac via St. Louis Fed
%
2016
’17
’18
’19
’20
3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00
5.25
Dec. 13, 2018x4.63%
Mortgages

The average rate on a 30-year fixed mortgage rate is 3.45%, according to Freddie Mac. The yield on the 10-year Treasury note—which has hit record lows in recent days—is used as a benchmark for different types of loans, including mortgages.

Falling interest rates could also mean it is a good time to consider refinancing. With rates trending down, whether it makes sense to refinance a mortgage now comes down to a host of personal factors. Black Knight Inc., a technology and data firm, reported that refinancing activity has nearly doubled over the past three quarters.

The Fed’s previous rate cuts sparked a spending streak among U.S. households, including boosting the mortgage market to its highest level since the financial crisis.

Auto Loans

Auto loans have fixed interest rates, which are pegged to Treasury yields, but the falling interest rates won’t predict what dealers and auto-lenders can charge for your auto loan. At the end of February, the average rate on a five-year new car loan was 4.56%, according to Bankrate.com.

If you’re considering buying a new car or trading up, pay attention to car prices and your existing debt load: Many Americans are now taking out auto loans that last longer than six years, according to Experian PLC, and buying new cars with negative equity.

High-Yield Savings Accounts & CDs

The interest rates offered on savings accounts and many certificates of deposit move with the federal-funds rate.

According to the FDIC, the average annual percentage yield on a one-year CD is 0.48%, and firms are continuing to cut rates on high-yield offerings. Goldman Sachs Group Inc.’s Marcus account has dropped to 1.7%, and robo advisers Betterment and Wealthfront have also lowered the rates on their saving products to 1.84% and 1.78%, respectively.

Federal Reserve cuts rate target
Source: Federal Reserve
%
2010
’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Credit cards

A decline in interest rates can sometimes affect the average credit card annual percentage rate, or APR, which is pegged to the prime rate.

However, The Wall Street Journal found that even as interest rates fall, some credit card rates are going up. This is because popular, generous rewards and points programs are costing banks more, so many are raising rates to cover such costs.

According to WalletHub’s January report of more than 1,000 credit-card offers, the average APR for those with good credit at the end of 2019 was 20.68%.

Student Loans

Falling interest rates may benefit you in other areas of your financial life, but your student loans, unfortunately, are less likely to be affected.

If you have private education loans, you could pay less interest and could consider refinancing. Those rates are tied to the London interbank offered rate.

For those with federal loans, interest rates are already set every May, based on a 10-year Treasury note auction. These interest rates are fixed for the entire life of the loan. The rate for direct subsidized and unsubsidized undergraduate loans disbursed between now and June 30, 2020, is 4.53%. So while this latest drop in interest rates won’t currently affect those with federal student loans, next year it could have an impact on loans distributed for the 2020-21 academic year.