Once again the news is filled with chatter about the lowering of interest rates by the Federal Reserve. If this has you wondering how these changes might impact you, let’s break it down.
Are you a borrower or a saver?
Depending on whether you are a borrower or a saver, interest rates will impact you differently.
The borrower is someone that carries debt. Maybe it’s carried month to month on credit cards. Maybe it’s through an auto loan. Maybe you’re planning to buy a home and need to apply for a home loan. These are all purchases made by borrowing money from a lender like a bank.
The saver is the person who, even if they pay for goods and services with a credit card, they pay it off every month and don’t carry a balance. They own their car outright. Maybe they rent. They don’t borrow money to pay for things with money that they don’t have.
The impact from changes in interest rates
Let’s look at this in the simplest way that it’s likely to impact most consumers.
What does this mean for the borrower? When interest rates rise, borrowing becomes more expensive. Any debt you hold or new debt that you take on could end up costing you more as the banks pass the cost of rate increases onto their customers.
What about for the saver? When interest rates go up, a saver with money in a high interest savings account or CDs could see their savings rates go up which means more money back to you. As banks are now pulling in more money from lending out money, they reward savers.
The lowering of interest rates would have the opposite effect for both scenarios.
For anyone borrowing money, the only advice I can give is to try to not carry a balance, especially on credit cards, which tend to carry very high interest rates. Pay them off at least monthly. Even better, pay off all your debt completely!
If you’re a saver, shop around for the best savings rate. Avoid most brick and mortar banks and go with an online bank like Ally Bank. Because they operate with lower costs, they tend to offer more favorable rates to their customers. I have personal experience with Ally Bank and am still very happy with them.
Savings Account Interest Rates as of 8/1/2019
The bottom line is
If you’re a saver, you’re probably going to earn more.
If you’re a borrower you’re probably going to pay more.