As you all probably heard, the Federal Reserve lowered the interest rate to .25%. This near zero rate caused a spike in the stock market and many reactions around the finance world. What does it mean for you? I’ll tell you!
As a borrower, it means you can save money. This is going to be one of the best opportunities to save money on debt in US history. I am a big fan of consolidating all of your loans into one, low interest, home equity loan or home equity line of credit. A secured loan has a much, much lower interest rate than credit cards. I am talking in the range of 20% lower! Lower rates save you money. Now even my 5.95% car loan looks like a high rate.
As a saver, your rates are going to go down. If you are in a CD, your rates are fixed for the duration of the certificate. If you are in a high rate savings account, expect your rate to go down. About a year ago I opened a savings account at Capital One 360 (formerly ING Direct) at 4%. Now it is down to 2.5%. I expect it to drop to 2% soon. It is still better than most banks though.
The rest of the impact will not hit you individually. The real change will be for banks and businesses, where borrowing is becoming much cheaper and markets will begin to open up more. In a few years we will probably be fighting the inflation we are creating today.
So, to take advantage. Consolidate and pay off your debts! That is all. Also, even though rates are low, don’t stop saving. They want you to spend. Resist.
P.S. If you are wondering “what rate” was lowered, it is the Fed Funds rate. The rate is used primarily for overnight inter-bank lending.