What a Federal Reserve Rate Cut Means for You

Federal Reserve Rate Cut

If you’ve been following the news lately, you’ve probably heard talk about the Federal Reserve cutting the interest rate to 0% as a result of the ongoing economic difficulties related to COVID-19. What does the Federal Reserve rate cut mean for you, the typical consumer? We’ll break it down and look at some of the most common effects.

What Is a Federal Reserve Rate Cut?

When you hear in the news that the Fed has cut interest rates, it actually means a cut to the federal funds rate. The federal funds rate governs the interest rate for banks to lend to each other. This tends to have a ripple effect on other types of consumer loans, but it’s not an instant change or a guarantee of a certain rate, so it’s still important to shop around and compare when taking out any kind of loan.

Mortgage Rates

Federal-Reserve-Rate-Cut Mortgage Rates

You will probably see banks offering lower interest rates to their customers on new 30-year mortgages. If you already have a fixed-rate mortgage, the rate change won’t directly affect you because your interest rate is set for the duration of the loan. It’s a good time for current homeowners to consider refinancing as a way to take advantage of reduced rates, but you may want to wait a few weeks before applying since many banks are currently inundated with applications.

Credit Card Rates


As with mortgages, there is the potential to take advantage of lower rates. If you’re already paying off the balance monthly on a current card, you won’t see any effects from the Fed’s rate cut.

However, if you are carrying a balance on a card it may be a good time to look at paying it off by finding a card with introductory 0% APR on balance transfers. You can save money by consolidating your credit card debt there and paying it off within the 0% APR time period.

However, be sure to keep a close eye on how long the 0% APR lasts and what the interest rate will be afterwards to make sure you’ll actually be able to save money.

Student Loan Rates


If you have a student loan with a variable interest rate, you will probably see your interest rate decrease. If you have a fixed-rate loan, the situation is the same as a fixed-rate mortgage – it won’t change your existing rate, but it may be a good time to look at refinancing and consolidating your loans to take advantage of lower rates.

Also, keep in mind that interest on federally held student loans has been frozen for the time being. It’s only a temporary freeze (the end date is still to be determined), and doesn’t apply to privately held loans, so it’s still a good idea to explore your options.

Savings Accounts


The flip side of the coin for most consumers is the negative effect on savings account interest. Savings accounts do not have a fixed interest rate, so you’ll probably see greatly reduced interest in the very near future.

The current economic situation can be scary, but the Federal Reserve’s rate cut is put in place specifically to help. As a savvy consumer, with just a little research you can find ways to save money on your current debts and come out stronger!

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