This week’s headline news – coronavirus, stock market volatility, and the primary elections – could make anyone wonder “What should I do with my finances?” Then the Federal Reserve lowers rate by 50 basis points! If you haven’t been through this part of the financial cycle here are 5 ways the rate cut may affect you.

1. Credit Card Rates

Most credit cards rates vary monthly since they are tied to the prime rate, which is connected to the Federal Reserve rate. When the Fed lowers or raises interest rates, the prime rate typically falls or rises with it. After a rate cut, borrowers may see a slight decrease overtime on their credit card rates.

2. Savings and CD Rates

If you’re a saver, or live off of interest income, you may not be pleased with a cut. Most financial institutions typically choose to lower the APYs they offer on savings, market rate accounts and certificates of deposit. When and by how much the institution lowers its yields depends on various conditions, as well as the competitive playing field. As a member of a credit union you may benefit from our mission to focus on the financial well-being of our members so we try to keep rates as high as possible.

3. Mortgage Rates

Mortgage rates do not typically respond as quickly as deposit rates to Fed changes. Interest rates on homes are more closely tied to the 10-year Treasury yield, which serves as a benchmark to the 30-year fixed mortgage. While there is not a direct relationship, the two are a reflection of the same concern of the health of the economy.  If you own a home you may want to confirm your current rate/term on your existing mortgage and think about whether or not now is a good time to refinance, or even buy a second or vacation home.

4. Home Equity Lines of Credit (HELOCs)

Like credit cards, many home equity lines of credit have variable rates tied to the prime rate, meaning those rates could fall when the Fed lowers rates. If you have a large outstanding balance on your HELOC now might be a good time to think about a home loan refinance and you can roll your HELOC balance into your primary mortgage refinance to lock in a lower rate.

5. Auto Loan Rates

Some auto loans may be tied to the prime rate and some auto loan rates are fixed. Because most auto loans are short-term (48 to 60 months) the impact on Fed rate cuts is usually quite small for existing auto loan holders, however if you are in the market for a new or used car auto loan rates may be more attractive for the foreseeable future.  

We are always here to help our members so if you’d like more information please stop by your local branch, call us at 800-232-8101, or reach out to us here.