5 things that get cheaper when the Fed cuts interest rates

Business Insider Finance 1 month ago

On Wednesday, the Federal Reserve lowered the federal funds rate by 0.25%, meaning Americans are likely to see interest rates fall on everything from loans to credit cards.

Greg McBride, chief analyst at Bankrate, told Business Insider in July that some interest rates are more closely tied to the Fed's fund rate than others. "When interest rates go down, consumers will typically see a similar decrease in credit card rates, home equity lines of credit, variable rate student loans, and small business loans," he says. Mortgages, however, won't see much of an effect, as they tend to move independently of the Fed's rate changes.

Here are five things that should get cheaper with an interest rate cut from the Fed.

5. Starting or growing a small business

5. Starting or growing a small business
Small business loan interest rates will be affected by the Fed's decision.

Those who are looking to take out small business loans will see lower rates thanks to the Fed's decision to cut rates. Business loans generally follow the federal funds rate and the prime rate, which Business Insider's Bob Bryan reports describes as "the interest rate used as a starting point for non-mortgage loans."

If your small business needs a little extra cash to get to the next level, lower interest rates will help make getting a small business loan more affordable.

4. Paying off credit card debt (or consolidating it)

4. Paying off credit card debt (or consolidating it)
Credit card interest rates will likely fall by .25%.

Interest rates on credit cards are closely tied to the prime rate, so you'll likely see decreases near .25% on interest rates.

Americans now owe about $870 billion in credit card debt, as Business Insider's Gina Heeb reports, and Value Penguin estimates that the average American household has about $5,700 worth of credit card debt. With interest rates low, now is a good time to start dealing with it.

With this decrease, there's an opportunity to pay off credit card debts at a lower interest rate, or consolidate debt and lock in that lower interest rate.

3. Paying off variable rate student loans

3. Paying off variable rate student loans
Only those with variable rate student loans will see an effect.

For those with variable rate, private student loans, they just got cheaper. Variable rate loans are closely tied to the Libor or prime rate, and with that decreasing, you'll likely pay less in interest.

That said, it might also be a good time to refinance, and lock in a lower fixed rate on student loans. However, those who already have fixed rate student loans won't see any effects.

2. Using a HELOC to make home renovations

2. Using a HELOC to make home renovations
HELOC loans can help pay for home renovations, and their rates just lowered.

Considering giving a bathroom, kitchen, or backyard a makeover, but need a loan to make it happen? Homeowners can take advantage of the fact that home equity lines of credit just lowered their rates.

Bankrate reports that the average HELOC rate is at 7.14% as of September 18.

Since HELOC rates are very closely tied to the prime rate, there's a good chance that these will drop by about the same amount as the amount that the prime rate dropped. In this case, it's likely that HELOC interest rates will fall by 0.25%.

1. Buying a car

1. Buying a car
The old-fashioned way to buy a car.

Whether you're planning to buy a new or used car, the interest rates on auto loans will likely fall along with the prime rate.

In the fourth quarter of 2018, auto loan interest rates hit a 10-year high at an average rate of 6.3%, reported Business Insider's Rachel Premack. Hopefully, the Fed's cut will help to bring auto loan rates back down, even if just slightly.

While the rate cut will have no effect on existing loans, it might be a better time to look around and refinance your auto loan if you're feeling like your interest rate is too high.

Source link
Read also:
Business Insider › Finance › 1 month ago
The Federal Reserve lowered interest rates during its September meeting. This is the second time since the Great Recession that rates have been lowered, following the last cut in July. The Federal Open Market Committee, the policymaking branch of the...
Sputnik International › 2 weeks ago
The last time that the Federal Reserve reduced interest rates, the move was preceded by President Donald Trump criticising the its actions, demanding that it lower the rates to closer to zero. POTUS argued that the Fed is doing more harm to the...
Chicago Tribune › Finance › 3 hours ago
Fed policymakers are unlikely to cut rates, Jerome Powell said, unless the economy slows enough to cause Fed policymakers to make a “material reassessment” of their outlook. Powell was asked about negative interest rates, which President Donald...
Business Insider › Finance › 1 week ago
In four months, I've earned over $111 in interest with my Wealthfront cash account. With my old savings account, it would have taken me over 50 years to earn that much interest on my money. Due to Fed rate cuts, Wealthfront's interest rates have dipped...
Forbes › Finance › 3 weeks ago
Lenders never advertise their average interest rates or their low credit score borrower interest rates. The best rates for the best borrowers always make the headlines, that’s how it works. A low credit score may mean a higher interest rate.
Reuters › Finance › 0 month ago
A low interest rate environment sets limits on what the Federal Reserve can accomplish with monetary policy, making it important for the Fed to "proactively" cut rates when risks appear to provide a buffer for the economy, Chicago Fed President Charles...
Washington Times › 2 weeks ago
The Federal Reserve cut short-term interest rates Wednesday for a third time this year to try to support the economy. But it signaled that it plans no further cuts unless it sees clear evidence that the economic outlook has worsened.
ABC News › Finance › 2 weeks ago
Fed cuts rates for a 3rd time this year but signals it will now likely pause
CNN › Finance › 1 month ago
Say what you will about President Trump's unusually loud critiques of Federal Reserve chairman Jerome Powell. But Trump is not wrong to note that interest rates in the US, even after two cuts, are higher than much of the rest of the developed world.
USA Today › Finance › 1 month ago
The Fed lowered interest rates by a quarter point for the second time this summer to head off a potential recession. Another cut could be on the way.
Sign In

Sign in to follow sources and tags you love, and get personalized stories.

Continue with Google