How The Fed Rate Cut Affects You

The Fed cut interest rates Monday, but what does this mean for your wallet?

  • Savings yields: You’ll earn less interest from money market funds, certificates of deposit, and the like.
  • Stocks: As we’ve seen, there’s been a big rally.
  • People with option-ARM mortgages: Oops, you’re still screwed.

What a Fed rate cut would mean to you [AZ Central via Money Crashers]
(Photo: Ms. President)


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  1. hypnotik_jello says:

    Uhhh. they cut the rate on Tuesday.

  2. Beerad says:

    And, uh, aren’t people with option-ARMs getting their rates cut by that same half a point at the next adjustment period?

  3. orielbean says:

    No, Beerad – the mortgages are tied to bonds, not the fed rate. Not direct. Now, the ARMS might drop a little in response, but won’t be proportional to the other changes. There are a few layers that buffer the impact of the drop.

  4. hypnotik_jello says:

    yes, mortgages are tied to bonds – repackaged debt which is sold on the market. Which is why the entire subprime meltdown extends far beyond U.S. borders and affects the entire global economy. Another reason for the credit crunch – no one is sure how much bad debt is out there because they’ve been repackaged and sold in different forms so many times.

  5. ColoradoShark says:

    And, of course, the credit card companies will also cut their interest rates.

    The preceding was a totally facetious and cynical remark. Then again, is it possible to be too cynical about credit card companies?

  6. Beerad says:

    @orielbean: Really? Everything I’ve read suggested that the rate cut had a corresponding effect on T-bills and other Treasury instruments, which are tied directly to ARM rates (well, certain ARMs). But I freely confess I’m no expert.

  7. Schalicto says:

    I’ll be saving $20 a month on my equity line and my ING Direct Savings rate went up!

  8. falc says:

    @ schalicto: actually the ING Direct savings rate went DOWN, as indicated in the first bullet point.

    also, if you log into your ING account you’ll notice under the Transaction Description that the rate went down from 4.5% to 4.218%… WTF? how does 4.218% round to 4.3%???

  9. Blueskylaw says:

    So now my credit card rate should go from 24½% to 24%. Yippeeeee, break out the bubbly for the celebration.

  10. BrockBrockman says:

    @falc: The same way that $2.899 per gallon rounds down to $2.89.

    I bet a lot of people are going to try slinging ARMs again with this news, despite the fact that it got them in trouble last time, under my theory that “Idiots Never Learn From Their Mistakes.”

  11. not_seth_brundle says:

    @falc: It’s not rounding, actually; it’s compounding. APR v. APY. With monthly compounding, a 4.218% APR is equivalent to a 4.3% APY.

  12. silenuswise says:

    And helloooooo inflation! Good to see you again–I always welcome 70’s nostalgia. Way to get the country saving again, feds. Well, it’s all about market rallies and Wall St., right? Even though former Fed-Chair-cum-book-hawker Greenspan admits we can’t (and shouldn’t) inflate our way out of the current housing market crash. On the bright side, if you were itching to plunk down money in some stocks, now’s probably the time for that. Either way, prepare over the next few years for an uncomfortably high inflation rate, a depletion in real value of all your assets (including your home), and the weakest dollar in history. Oh well, we can always count on consumer debt spending, right? Right? Bueller…?

  13. Sudonum says:

    I had an ARM several years ago that WAS tied to Prime. It would adjust to a certain number of points above whatever the prime rate was at the time.

  14. tadowguy says:

    In general, mortgage rates ARE tied to bonds (they tend to track the 10-year fairly well), but then again most ARMs I’ve seen reset to PRIME + X%, so the reset rate is tied to the Federal funds rate. So everyone is right!