Federal Reserve Chair Jerome Powell has hinted that interest rates could finally come down in September, marking the first time in nearly a year.
The central bank’s Monetary Policy Committee may decide to lower rates at its next meeting in mid-September. Whenever the Fed cuts rates, it can directly impact your personal finances.
Loans and credit cards
The federal rate influences how expensive it is for lenders to loan money, which means a rate cut would typically result in lower interest rates for consumers on new loans.
But Bankrate senior analyst Greg McBride cautions that any decrease could take time, with borrowers with good credit likely the first to benefit.
“Personal loan rates haven’t been particularly interest rate sensitive in previous rate cut or rate hike cycles, with rates for borrowers with good credit moving in a range much narrower than the scope of Fed moves,” McBride said in this recent Bankrate blog post.
Existing fixed-rate personal loans don’t change based on the federal rate.
As for credit cards, a Fed rate cut can lead to decreases in your credit card’s annual percentage rate because most APRs are tied to the prime rate, which is influenced by the Fed’s benchmark rate.
But even with the rate cut, experts warn not to bank on big savings as credit card interest rates remain at historic highs, with the average hovering around 20%, according to Bankrate. A quarter to a half percentage cut won’t make much difference if you carry a balance from month to month.
Savings
For savers, banks offering top interest rates tend to pay more when the U.S. central bank hikes rates and less when it cuts them, according to Bankrate.
Whatever happens, you will still be likely to get the best return on your savings if you put your money in a high-yield savings account from an FDIC-insured online bank.
“Seeking out the top-yielding savings accounts will continue to be the difference between staying ahead of inflation or falling behind as many banks — and especially large banks — never passed along much in the way of higher rates to savers,” McBride said in a recent blog post.
Mortgages
Whether you’re in the market or looking to refinance, it’s not clear how much influence a Fed rate cut could have. That’s because mortgage rates aren’t tied directly to Fed moves.
According to Bankrate, fixed-rate mortgages — the most popular type of home loan — don’t mirror the federal funds rate; they track the 10-year Treasury yield.
Mortgage rates also move due to inflation, supply and demand, and the secondary mortgage market, where investors buy mortgage-backed securities.
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