Interest rates are a powerful tool used by the Federal Reserve to manage the U.S. economy's growth by influencing inflation, unemployment, and Gross Domestic Product (GDP). In simple terms, the Federal Reserve (FED) adjusts these rates to control economic overheating or stimulate growth, directly affecting what consumers pay on their loans and earn on their savings. With recent economic indicators, the FED recently made the first interest rate reduction since 2020 and is projected to continue cutting rates in the coming months. Consumers should be aware of the various opportunities in front of them and prepare to take advantage.
Reduced Borrowing Costs
What does this mean to you? In short, you will pay less to borrow money and get out of debt faster. For existing variable-rate loans – home equity lines-of-credit, for example – and credit cards, paying back your loan will be more manageable as your interest rates reset with each FED decision. If you’ve been holding off on making a big purchase, like a car, fixed interest rate loans also decrease with rate reductions, making that new car purchase more affordable than it has been in years. Or, if you purchased a car and had no choice but to tap into a high-rate loan, now is the time to consider refinancing it to take advantage of a lower rate.
Housing Market
The housing market often feels a significant impact from interest rate adjustments. As borrowing costs are reduced, housing becomes more affordable. A homeowner’s mortgage rate can drastically impact their monthly payment, creating new opportunities for people looking for a new home. If you purchased a home during a season of higher interest rates, or locked in an adjustable-rate mortgage, keep an eye on rates to see if a mortgage refinance might help you save money, or secure a more favorable term.
Interest Rates and Savings Accounts
As the FED reduces interest rates, one less favorable effect is a reduction in interest rates – Annual Percentage Yield, or APY – banks and credit unions pay consumers for savings products, from high-yield savings to Money Market Accounts, and Certificates, or CDs. Consumers should consider securing high-rate options before rates reduce even further, allowing them to lock in a higher rate for some period of time, and enabling their savings to grow at current, historically high, rates.
KEMBA Can Help You Navigate Rate Fluctuations
Navigating financial markets during interest rate fluctuations requires patience and a well-thought-out strategy. Whether rates are high or low, KEMBA Financial Credit Union is here to support you and help you determine the best option for your circumstances. We offer a range of products, from competitive-rate mortgages that can help you manage your home buying or refinancing needs to low-rate credit cards, auto and home equity loans, to savings instruments like Certificates and Money Market Accounts that maximize your savings and empower you to make smart financial choices.
For more information on how to manage your finances effectively during changing rate environments, visit KEMBA’s website. For personal advice or specific questions on your options, please visit a local KEMBA branch or call us at 614.235.2395 and select Option 4 to get started. Our associates are here for you and equipped to help you select the right products for your unique needs.