Editor's Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes. CNBC will update as changes are made public.
The Federal Reserve's emergency rate cutback in March, which dropped the benchmark interest rate to zero, islikely here to stay. Just last week, the Fed publicly stated that even if inflation starts to pick up again amid the economic recovery from the coronavirus pandemic, it doesn't expect to raise interest rates any time soon as the labor market rebounds.
Wall Street economists predict that these rock-bottom rates may be around for the next several years. In fact, after the 2008 Global Financial Crisis, the Fed kept benchmark rates low for seven years. While this means that borrowing becomes cheaper for those who can get approved for loans, it's not such good news for savers.
Here's how the Fed's efforts to keep interest rates low couldimpact consumers.
1. Home mortgages and personal loans
Low interest rates can certainly help when it comes to financing a home. But it depends on the type of mortgage you have, whether it is a fixed-rate mortgage (interest rate remains the same over the life of the loan) or an adjustable-rate mortgage (interest rate varies).
Because fixed-rate mortgages have the interest rate locked in, anyone looking to buy or refinance will benefit from the sustained lower rates. This is true for all fixed-rate financial products, including personal loans and car loans.Unfortunately, if you're already locked into a loan and you're not looking (or able) to refinance, you won't really benefit from lower interest rates right now.
On the other hand, homeowners with an adjustable-rate mortgage should have already seen their monthly payments decrease after the rate cut. This could also be a good time to consider refinancing to a fixed-rate loan if possible, so you can lock in a low interest rate and not worry about your mortgage payments going up later.
2. Credit card debt
Credit card issuers base their variable interest rates off of theprime rate. Since this rate is directly influenced by the Fed's benchmark, a rate cut means that credit card APRs also drop.
For example, the Fed's second rate adjustmentback in March resulted in a 1% APR reduction. Therefore, a credit card with a 15.24% variable APR saw a decrease to 14.24%.
As the Fed maintains a low benchmark rate, your credit card's APR likely won't change much more from the March reduction.
Unfortunately, a 1% drop won't make that big of a dent in your outstanding credit card balances. You're better off trying to pay them off or transferring your debt to a balance transfer credit card, such as theU.S. Bank Visa® Platinum Card. With a balance transfer card, you have more time to pay off your debt at 0% interest.
U.S. Bank Visa® Platinum Card
Learn More
Information about the U.S. Bank Visa® Platinum Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
Rewards
None
Welcome bonus
None
Annual fee
$0
Intro APR
0% for the first 18 billing cycles on balance transfers and purchases
Regular APR
18.74% - 29.74% (Variable)
Balance transfer fee
An introductory fee of either 3% of the amount of each transfer or $5 minimum, whichever is greater, for balances transferred within 60 days of account opening. After that, either 5% of the amount of each transfer or $5 minimum, whichever is greater
Foreign transaction fee
3%
Credit needed
Excellent/Good
Terms apply.
Pros
- No annual fee
- Cell phone protection plan
Cons
- No rewards program
- Has a foreign transaction fee
- Balances must be transferred within 60 days from account opening
Learn More
Just be aware that, due to the pandemic, balance transfer offers have been harder to find and qualify for as card issuers are trying to minimize risk. For those withfair credit, consider applying for theNavy Federal Credit Union Platinum Credit Card for better approval chances.
Navy Federal Credit Union Platinum Credit Card
Information about the Navy Federal Credit Union Platinum Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
Rewards
None
Welcome bonus
None
Annual fee
$0
Intro APR
0.99% intro APR on the balance transfer for 12 months from account opening; Expires on Jan. 02, 2023
Regular APR
8.99% to 18.00% variable
Balance transfer fee
None
Foreign transaction fee
None
Credit needed
Good/Fair
See our methodology, terms apply.
Pros
- No annual fee
- No foreign transaction fee
- Applicants with fair to good credit may qualify, which is more lenient than most balance transfer cards
Cons
- Intro APR period is not 0%
- Credit union membership is required (must have military affiliation)
- No welcome bonus
- No rewards program
3. Savings accounts
If you're hoping to see a hike in the rate you're earning on your high-yield savings account, last week's Fed announcement means you'll be waiting awhile.
Because annual percentage yields, or APYs, often fluctuate in accordance with the Fed rate, they likely won't go back up until the Fed decides to raise the benchmark rate. A lower rate means that savers will earn less on their money. Since March, interest rates on high-yield savings accounts have dropped to nearly half of what they were a year ago.
On the bright side, interest rates do — and will — eventually go back up. When the economy is booming again, the Fed will raise interest rates to stabilize borrowing and spending, which gives savings accounts an added edge as banks increase their savings yields.
Although consumers are earning less on their savings these days, they're stillearning some interest and that can add up over time. For this reason, high-yield savings accounts make smart financial sense. High-yield rates currently hover around 1%, but that's still 16 times more than the national average savings account rate.
The best high-yield savings accounts, like theVaro Savings Account, come with zero monthly fees and no minimum balance or deposit requirements. Varo also currently offers a higher APY than a lot others at 3.00%, with the option to earn up to 5.00% if you meet certain monthly requirements.
Varo Savings Account
Bank Account Services are provided by Varo Bank, N.A., Member FDIC.
Annual Percentage Yield (APY)
Begin earning 3.00% APY and qualify to earn 5.00% APY if meet requirements
Minimum balance
$0.01 to earn interest
Monthly fee
None
Maximum transactions
Up to 6 free withdrawals or transfers per statement cycle
Excessive transactions fee
None
Overdraft fee
None
Offer checking account?
Yes
Offer ATM card?
Yes, if have a Varo Bank Account
Terms apply.
Read our Varo Savings Account review.
Pros
- Strong APY and option to earn even higher
- No minimum deposit and low minimum balance
- No monthly fees
- Option to add a checking account with ATM access
- Offers 2 programs to help automate your savings
Cons
- Have to meet requirements to earn higher APY
- Cash deposits are only available through third-party services, which charge a fee
Information about the Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.