Buzz
On Sunday, the Federal Reserve revealed its plan to reduce interest rates to nearly zero, with the benchmark for consumer lending rates set to range between 0% and 0.25%.
This rate is expected to stay at this level until 'the economy has overcome recent challenges,' according to a statement from the Federal Reserve press release.
However, this doesn’t mean you'll get a debt-free break or an ultra-low mortgage rate. The Federal Reserve's designated rate is a guideline, not a blanket rule, and its effects are more complicated than they might first appear.
Here’s what you can expect from your financial accounts over the next few weeks.
Checking and Savings Accounts
You might notice a drop in the interest rates for your checking or savings accounts, but you won’t lose the ability to earn interest altogether.
Ken Tumin, a banking expert from DepositAccounts.com, mentioned that online savings account rates could stay close to the 1% mark, based on patterns from the last recession.
“During the 2008-2015 period of zero interest rates, most online savings accounts hovered between 0.70% and 1.00%,” he noted in an email. “If history repeats itself, that could be the lowest range we see for today’s online savings accounts.”
Certificates of Deposit (CDs)
If you want to earn more than just a few cents, now might be the time to get a certificate of deposit, but Tumin advises acting quickly before financial institutions lower their rates.
If you’re concerned about maintaining financial stability during this time but still want to secure a solid interest rate, consider looking into no-penalty CDs, which won’t charge hefty fees for early withdrawal, unlike traditional CDs.
Credit Cards and Auto Loans
Credit card and car loan interest rates are projected to drop by an average of 16 basis points (0.16%), according to WalletHub estimates. However, this reduction only impacts new accounts.
If you have a fixed-rate loan or credit card, your interest rate will remain unchanged on your monthly bill.
For those with a variable interest rate, you might see a small decrease, but not a significant one. For instance, six months ago, the average credit card interest rate was 17.61%, according to CreditCards.com, and last week, it was 17.08%.
Mortgages
WalletHub forecasts that new mortgage interest rates will drop by about 52 basis points, or half a percent. This will only impact new mortgages and those with variable rates, not existing fixed-rate mortgages.
It may be an ideal time to refinance, but if you haven't already begun the process, you might face challenges refinancing now that the Federal Reserve has cut rates so drastically.
The Mortgage Bankers Association reported that refinancing applications recently reached their highest weekly level in nearly 11 years, according to a Wall Street Journal article. Lenders might struggle to manage the influx of refinancing requests, especially during a period when some companies may be operating at limited capacity.
