There has been a lot of talk about the Fed and the interest rates being set. You might know that the current rate set by the Fed is zero because of the economic turmoil that is occurring. This is a method used to try to stave off a recession or other economic problems. How do the Fed’s interest rates actually impact Americans, though?
Credit Card Rates
The federal interest rate changes impact credit card rates, directly affecting your life. The average APR on a credit card is lower than usual due to the rate cuts that have taken place. Knowing this, it will be easier for Americans to pay down their debts due to having more reasonable interest rates. The interest rates are higher than zero due to credit card companies adding onto the federal rate, but they’re still lower than average.
Lower Yields From CDs
Certificates of deposit can usually be an excellent way to earn money, but the rate cuts change things. Yields from items such as CDs and treasury bonds will be nonexistent due to the rate changes. When the interest rate is cut to zero, the expected yields will also no longer occur. This means that people who have invested in CDs and bonds might not be cheering for federal rate cuts.
Mortgage rates can be impacted by federal changes as well, but it’s not exactly the same as how credit cards are affected. The market dictates what the mortgage rates are going to be, and the federal rate is adjusted due to market conditions. There might not be a direct impact due to a federal rate cut, but if there needs to be a federal rate cut, then mortgage rates are likely going to be lower as well. Currently, mortgage rates are relatively low, making refinancing an attractive option.
Auto Loan Rates
Finally, you should be happy to hear that auto loan rates will become more reasonable due to federal rate changes. Many auto loans are tied to the prime rate and will go down when the Fed decides to lower the rate. If you’re in the market for a car, then you can expect to get a very reasonable auto loan deal. Keeping the rate low like this can stimulate economic activity.