As the economy begins to slow down, the Federal Reserve unveils which measure it's going to take regarding interest rate. Take a look at these tips to adapt correctly to the FEDs decisions!
The Federal Reserve is in charge of deciding measures to grant economic and financial stability. Based mainly on employment and inflation data, the FED sets lower or higher interest rates to encourage investments and stabilize the country's growth.
This measure can generate a few bumps, so it's way better to be prepared. Here are five tips to learn how this can impact your personal finances.
- Credit card rates: Credit card's interest rates are tied to the prime rate based on the FED's benchmark. This means that when the Federal Reserve increases or lowers its rate, the prime rate will follow the trend. Bear in mind that credit card borrowers charge an additional percentage over the prime rate, that's why its rate will remain a bit higher.
- Savings and CD rates: Unlike credit card borrowers, savers actually benefit from rate hikes and take a hit when they are low. This is because banks usually lower the annual percentage yields (APYs) they offer on their products when FED announces cuts. Regarding CD rates, they are also influenced by other macroeconomic conditions besides from the FEDs decisions.
- Mortgage rates: The good news is that regular mortgages aren't tied to the FEDs decisions. However, if you have a mortgage with a variable rate or a HELOC (home equity line of credit) you will notice more influence from the Federal Reserve. HELOC rates are often tied to the prime rate, which imitates the FEDs rate decisions.