Interest Rates are Getting Lower - What Does That Mean for Me?

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In this article, we discuss what lowering interest rates can mean for the consumer.

The Federal Reserve recently announced a rate cut. What does that mean for you and me?

The Federal Reserve Open Committee (FOMC) recently announced a rate cut. Before you dismiss this as news only relevant to the finance- or bank-types, let's take another look.

Interest rates set by the FOMC impact the rates banks charge customers. If you have a savings account, student loan, credit card debt, or a home mortgage, changing interest rates can affect you.

This article from CNBC provides some details on how interest rate cuts can impact consumers. Note, link opens in new tab. A few key points:

• The prime rate is the rate that most banks offer to the most credit-worthy customers. It’s typically three percentage points above the federal funds rate.

• Credit cards determine interest rates typically using the prime rate, so if the prime rate falls, then credit card interest rates would also fall.

• Lower rates typically mean lower cost of loans, like mortgages.

• When rates go down, that can mean that the economy may be expected to take a turn for the worse, which means it may be harder to find a job. There are many reasons the FOMC cuts rates, but often the underlying problem is a slowing economy.

• Those 4 or 5% savings account rates offered by some of the online banks? They will disappear as rates fall. If the FOMC lowers rates, that means your bank won’t have the extra income to pay out a higher savings rate to you.

The information and illustrations presented above are hypothetical and do not represent the return on any particular investment nor specific financial advice. All investing is subject to risk, including the possible loss of the money you invest.