What the Interest-Rate Cut Means for You

The Federal Reserve cut its short-term benchmark rate, dropping a quarter-percentage point to a range between 1.75% and 2%. This follows a landmark rate cut in July, the first since 2008.

Tensions in trade policy and fears of a slowing global economy likely spurred the Fed to cut rates at today’s policy-setting meeting. Last week, President Trump again called for Fed officials to lower interest rates to “ZERO, or less” on Twitter. But what does the Fed’s decision mean for your own financial life? Interest rates affect the cost of borrowing, so a rate change can mean different things for your mortgage, your student loans and more. Below, we outline a few things to watch for. Mortgages Ahead of the September Fed meeting, mortgage rates reached a three-year low. The average rate on a 30-year fixed mortgage rate is 3.56%, according to Freddie Mac. The yield on the 10-year Treasury note—currently around 1.75%—is used as a benchmark for different types of loans, including mortgages. For those who are considering refinancing, falling rates could mean it is a good time to do so. Since the Fed’s last rate cut in July, mortgage refinancing has ticked up. Applications were up 169% in the first week of September from a year ago, according to the Mortgage Bankers Association. Credit Cards The average annual percentage rate for a new card is currently 19.24%, according to WalletHub’s September survey of more than 1,000 credit-card offers. A decrease in interest rates can affect the average credit-card APR, which is pegged to the prime rate. That is influenced more by what the Fed does with short-term rates than longer-term yields. When interest rates are high, those carrying a hefty credit-card balance pay more. Student Loans For those with federal loans, interest rates are set every May based on the 10-year Treasury note auction and are fixed for the life of the loan. The rate for direct subsidized and unsubsidized undergraduate loans disbursed between now and June 30, 2020, is 4.53%. While this rate cut won’t affect federal student loans, if low yields continue it could have an impact on loans for the 2020-2021 academic year. If you have private education loans, however, you could pay less interest because those rates are tied to the London interbank offered rate. High-Yield Savings Accounts and CDs Get ready for that email from your bank that is probably going to land and tell you interest rates have changed. The interest rates offered on savings accounts and many certificates of deposit move with the federal-funds rate set by the Fed. Firms started cutting rates on high-yield offerings over the summer. Now,

Goldman Sachs Group
Inc.

’s Marcus account has decreased to 2.00% and

Ally Financial
Inc.

’s account remains at 1.9%. Robo advisers Betterment and Wealthfront have their saving products at 2.44% and 2.32%, respectively. According to the Federal Deposit Insurance Corp., the average APY on a one-year CD is 0.54%, but better offers are still around, including Barclay’s at 2.40% and Marcus’s at 2.25%. Car Loans The average rate on a five-year new-car loan is 4.58%, according to Bankrate.com. Most auto loans have fixed interest rates, which are pegged to Treasury yields. There isn’t a direct line between Fed moves on short-term rates and what dealers and auto lenders can charge. Write to Julia Carpenter at Julia.Carpenter@wsj.com

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