Federal Reserve Chairman Jerome Powell speaks at a virtual news conference in Tiskilwa, Illinois, on December 16, 2020.
Daniel Acker | Bloomberg | Getty Images
The Federal Reserve on Wednesday kept its benchmark interest rate at zero to continue supporting the economic recovery from the coronavirus pandemic.
The decision comes just days after the $ 1.9 trillion American Rescue Plan was sanctioned, adding even more stimulus to boost the US economy.
In addition, vaccinations are increasing – so far, more than 110 million Americans have received the Covid-19 vaccination, according to data from the Centers for Disease Control and Prevention. And, more adults will be eligible to be vaccinated soon. In a March 11 speech, President Joe Biden called on all states to make all adults eligible for the vaccine by May 1.
Still, even with the economic recovery underway, the central bank is committed to supporting the recovery. This means that low historical rates are likely to remain for a while. The Fed indicated on Wednesday that any increase in interest rates is unlikely until 2023.
“They are going to remain steadfast at this point and are not going to raise rates prematurely,” said Robert Frick, corporate economist at the Navy Federal Credit Union.
While the federal funds rate is not what consumers pay – instead, it refers to what banks charge each other for short-term loans – it does have an impact on what you pay for various types of credit.
A good time to refinance a mortgage
Consumers can save money by refinancing existing debt at a lower rate. For example, mortgage rates, which loosely follow 10-year US Treasury bonds, were one of the beneficiaries of changes in Fed rates last year.
Still, mortgage rates have soared in recent months, after reaching historic lows, putting some pressure on who is postponing refinancing so that it will be done soon.
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“If you’ve procrastinated on refinancing, it’s time to take action now,” said Greg McBride, chief financial analyst at Bankrate.
Even if you missed the low point, it’s important to remember that current mortgage rates are still a great deal, Frick said.
“People were hurt by getting loans below 3%,” he said. The popular 30-year fixed-rate mortgage on Tuesday had a 3.38% rate, according to the Mortgage News Daily.
Other loans can also be refinanced
In addition to mortgages, people can also save money by refinancing auto loans, something that is often overlooked, according to Frick. For those with the best credit scores, the rates on a new car loan can be as low as 4.08%, according to Bankrate.
“It doesn’t take as long as refinancing a mortgage,” said Frick. “If you can save $ 1,000 just to get a little paperwork or more, then you absolutely must do that.”
In addition, new credit cards may have lower interest rates and banks may offer lower rates for personal loans, according to Tendayi Kapfidze, chief economist at LendingTree. For borrowers with excellent credit, the average personal loan is between 10.3% and 12.5%, according to Bankrate.
“Creditors have become very conservative in the past year, but this has started to decrease somewhat,” said Kapfidze.
This means that people could save by consolidating credit card debt or paying it off with a personal loan at lower rates.
Those with student loan debt can also take advantage of the environment and refinance at a lower rate. This is just a good idea, however, if someone has private loans that have not been stopped by the lender – federal loans are currently postponed because of the coronavirus pandemic.
“Take action now – because if not, you’re leaving money on the table,” said Kapfidze.
A time for personal finance
Certainly, low interest rates are not good for everyone, especially savers, Frick said.
In fact, traditional banks generally offer savers an average percentage return of 0.7% per year for deposit accounts, while online bank rates tend to be slightly higher.
Still, some consumers may be in a unique position to revise their balance sheets in the coming weeks due to the low rate environment, the third round of stimuli that is coming and the fact that it is tax time, which means that refunds too are on the way for many Americans.
Act now – because if not, you’re leaving money on the table.
Tendayi Kapfidze
Chief Economist at LendingTree
“For many families, they will have one, maybe two big, unexpected gains here in the coming weeks,” said McBride. “These are two great opportunities to make remarkable progress in your finances.”
This would probably not affect those who have been most affected by the pandemic and have been struggling to survive, Frick said. But those who kept their jobs and managed to cut expenses may have a great opportunity to redefine their finances by paying off debts and increasing their savings.
“This is a game changer,” he said.