The Federal Reserve cut interest rates on Wednesday July 31st, 2019 by 0.25% with a goal to sustain the economic expansion for the benefit of the American people.

This marks the first rate cut since the great recession in December 2008 and it sets the range at 2-2.25%.

Here are a couple ways the rate cut may impact your money:

1. Savings

It’s no secret that its hard to get any sort of return on investment with your money sitting in the bank. Well, now its going to get just a little harder…

Prior to the rate cut, there were banks offering as high as 2.5% APY (annual percentage yield) if you keep a certain amount of cash on deposit with the bank. The reduction will likely bring this yield down.

Interested in comparing savings accounts? Bank Rate provides a side-by-side comparison HERE.

2. Credit cards, auto loans, student loans

Americans will likely see some relief when it comes to credit cards, auto loans, and student loans; however, the relief may be less than you think.

According to Business Insider, the average credit card debt in California households is approximately $10,496. Using these figures, it would save consumers only $2.19 per month.

Further, a 0.25% lower interest rate on an auto loan or student loan with a balance of $25,000 would saving approximately $5.20 per month. Certainly not a staggering savings, but I suppose its better than nothing.

3. Mortgages

Initially, the Fed rate cut impacts adjustable rate mortgages. For instance, if you have a HELOC (home equity line of credit) with a balance of $100,000, then your cost will go down by $250 per year (about $21 monthly – for a 0.25% drop in rate). This is an immediate reduction assuming your HELOC is has an adjustable rate.

Long term rates (i.e. 30yr fixed) are not impacted the same way as they are pegged to U.S. Treasuries. With that said, the Federal Funds Rate may indirectly influence or encourage movement on the treasury yields causing mortgage rates to go down.

In fact, since the rate reduction on Wednesday, the 10yr bond has dropped from 2.07% to 1.845% causing long term mortgage rates to fall to the lowest level of the year.

Needless to say… If your 30yr mortgage is over 4.5%, it may be a good time to consider your refinance options.

Hope you find this information useful.

All the best!

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