5 ways lower interest rates might affect you

When the Federal Reserve lowers its target interest rate, the change affects consumers too. The federal rate helps determine the interest you pay on loans and earn on savings, so it matters to just about everyone. Here’s what might change when rates fall.


Your mortgage payments could decrease

If you have a fixed-rate mortgage, you won’t be affected by the change. However, if your mortgage has an adjustable rate, your rate and payments could potentially decrease, depending on when your rate changes. If you’re planning to refinance a mortgage or you’re searching for a new fixed-rate loan, doing so after the Fed has trimmed rates might allow you to lock in a lower interest rate. However, other factors also play a role, such as your credit score.


Car loans could become less expensive

A low interest rate environment is good news for those looking to finance a car because you can borrow money more cheaply. People with higher-interest car loans might benefit from refinancing if rates drop, depending on how big the difference is and the length of the loan term. Lease rates are likely to go down too.


Your credit card rate may go down

The annual percentage rate (APR) of most credit cards is variable. That means a decrease in federal rates could potentially lower the interest you pay on your account balance, which may make it easier to pay down debt more quickly. 


Private student loans may get cheaper

Interest rates on federal student loans are fixed, so those rates remain locked. If you’ve taken out private loans, however, your interest payments could decrease. Whether your loans are private or public, a lower interest rate environment might be a good time to check your options for consolidation to see if you can get a lower overall rate.


Your savings accounts could generate smaller returns

While lower rates make it cheaper to borrow money, they also lower the rates banks pay customers in savings vehicles such as CDs, money market accounts and basic savings accounts. Don’t expect an immediate, dramatic change, though; rates tend to move gradually.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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