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What do 0% interest rates mean for you?

The Federal Reserve (the Fed) cut interest rates nearly to 0% on March 15. By cutting rates so low, the Fed hopes that businesses will be better able to manage through this period and, possibly, limit the number of layoffs, even as the country and the world grapple with serious health challenges.

For individuals and families, rates this low can present some challenges. For instance, lower rates can make it harder to save for retirement.1 Yet low rates may also help consumers by lowering borrowing costs on everything from mortgages to student loans to credit card debt. Here’s what you need to know about how extremely low interest rates may affect your personal finances.

What will happen to mortgage rates?

Mortgage rates tend to be influenced by the Fed rate, so they’re likely headed lower. Depending on your situation, refinancing your mortgage could result in lower monthly payments. But it’s important to note that refinancing comes with costs, so don’t rush into anything. Analysts at BofA Global Research expect the Fed to maintain rates near zero even once the economy has started to improve, so take time to consider all of the pros and cons.2

Will student loans cost less?

People saving and investing for children’s education are likely concerned about how volatility in the markets will affect their ability to pay tuition. These concerns are well founded, especially if a child is nearing college age. Still, low rates could provide some relief for families planning to offset education costs with student loans. Student loans, like mortgage rates, are influenced by the Fed rate—which means that rates for student loans are likely to be lower for the July 1, 2020 – July 1, 2021 year.

Will your credit card rates come down?

The amount of interest you pay on a credit card typically starts with an index such as the U.S. Prime Rate. Banks then add a margin to determine your annual percentage rate (APR). Because most APRs are variable—meaning they change when the Prime Rate rises or falls—you may see lower rates for your existing credit cards. Now could also be a time to consider consolidating debts from several cards on a single card with the lowest rate. But keep in mind that even with lower rates, debt from credit card interest can add up. Paying off more than the minimum each month could help you eliminate your credit card debt faster, making it less of a burden on your overall finances.

How do low rates affect your savings?

The interest rates that savings and money market accounts pay are bound to remain low for the foreseeable future, because they’re also linked to the Fed rate. If you have a 401(k) or other retirement account through your employer, you may have noticed that the value of any equity funds that you are invested in dropped significantly in the current environment. Now may be a good time to assess your asset allocation to make sure the level of risk you are taking in your investments is consistent with the risk tolerance and time horizon of your goals. Whatever you do, don’t let the current low rates discourage you from saving for your future. If anything, it might be a good idea to try to save more.

Remember, too, that if you’re having trouble paying your monthly bills during these challenging times, Bank of America stands ready to support you through its Client Assistance Program. If you are facing a financial hardship, contact us and our teammates will work with you to create a solution tailored to your situation.

For more useful information, visit the Bank of America Coronavirus Resource Center.

  1. BofA Global Research: The RIC Report: “What to expect when you’re expecting a rebound,” page 7.
  2. BofA Global Research: Morning Market Tidbits: “Emergency 100bp and more” March 16, 2020.
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The material provided on this website is for informational use only and is not intended for financial, tax 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 and tax advisor when making decisions regarding your financial situation.

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Information is as of 03/30/2020.

Opinions are those of the author(s) and are subject to change.

BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC, and wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

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