What Does the Federal Reserve Board Rate Decrease Mean for Me?

What Does the Federal Reserve Board Rate Decrease Mean for Me?

Recently, you’ve likely seen or heard news about the Federal Reserve (the “Fed”) decreasing rates. But you may not be familiar with what this means or how these changes can affect your personal finances. 

To help you navigate financial decisions and understand the impact global events can have on your money and financial well-being, we’ve broken down some of these more complex topics below. 

What is the Fed?

Simply put, the Fed is the central bank of the United States. In addition to all of its other responsibilities, the Fed sets interest rates that financial institutions, such as credit unions, are charged to borrow money. 

These interest rates typically rise or fall in response to the economy. If the economy is performing well, the rate may rise. If the economy is struggling, the rates may drop. 

How Does This Affect Me?

Generally, credit unions and banks may change their interest rates in response to the Fed’s rate. Consumers will usually feel the impact of this by seeing higher or lower interest rates on consumer-facing products, such as the interest they receive on savings accounts and the interest they pay on loans. 

What is the Fed Doing Now?

Businesses and individuals alike are being impacted by the COVID-19 crisis. Many companies have had to temporarily close their doors, lay off workers, or drastically alter their operations. Countless individuals are facing unpaid time off work, layoffs or terminations, and challenges making ends meet without their regular income. 

In response to the crisis, the Fed has dropped their rates to help the economy. Lower Fed rates can make it “cheaper” for consumers to spend and borrow money when credit unions and banks adjust their own rates in response. 

How Could the Current Fed Rate Drop Impact Me?

federal reserve board rate decrease

How the Fed rate drop impacts you will depend on what types of accounts you hold and your current situation. For instance:

  • If you have money in savings accounts, you might see the interest rate you’re paid for keeping money in these accounts decrease. Interest rates on these types of accounts haven’t been very high for some time now, but there is a chance they will drop lower during this time.  

  • If you have an existing loan, you may be able to save money by refinancing. Financial institutions may lower their auto or home loan rates, meaning you could pay significantly less interest over time on the money you’ve borrowed. 

  • If you’re in need of a new home or auto loan, now may be a good time to apply for one. With lower interest rates, you’ll likely get a better rate on loans now than you will once the economy recovers, and the Fed raises rates again. 

  • If you need access to cash, this can also be a good time to look at your borrowing options. Most reputable financial institutions offer unsecured personal loans. When the Fed lowers rates, interest rates on personal loans may drop, too, making it less costly to get the money you need to make ends meet. An unsecured loan means you don’t have to put a car, home, or other asset at risk as security. 

Is My Money Safe?

If you’re concerned about the money you have in savings, rest assured that there are measures in place to protect your money – even in hard times. Deposits at credit unions, like PSECU, are federally insured by the National Credit Union Administration (NCUA) up to $250,000. So, while your money may not earn interest as quickly when rates drop, you’re not at risk of losing the money you’ve deposited.

What Should I Do Next?

How your finances are impacted by the Fed rate cut and the best steps for you depend on your personal circumstances. Generally, however, it’s important to stay calm, stay informed, and continue practicing responsible money management. 

If you’re experiencing difficulty as a result of the COVID-19 situation, please contact us at 800.237.7328 to speak with one of our representatives about options that may be available. Learn more about how you can make healthy financial choices now and in the future. 

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.