Fed Cuts Rates Again…Here’s Your Action Plan!

February 2, 2008

The Fed recently cut the federal funds rate (the rate that affects consumer loans such as home equity lines of credit, auto loans, and credit cards) by a half percent after cutting it by three-quarters of a percent on January 22 in an emergency meeting. The federal funds rates now stands at 3% which is the lowest it has been in two years. The discount rate (the rate at which banks borrow from the Fed) was also cut half a percent to 3.5%.


What does this mean to you and me? The rate cuts means lower rates for borrowers but also lower rates for savers. Average 30 year mortgage rates now stand at 5.49% which is also the lowest in two years. If you’re looking to buy a home, it seems like now’s the time to buy with home prices considerably lower than even a couple years ago in some markets. It may also be time to refinance your existing home mortgage if you can save at least one percentage point or more.


You should also see lower rates for your variable credit cards. If you don’t, give your credit card company a quick call and ask them to lower the rate. If they don’t, ask for the retention department and threaten closing your account and transferring balances elsewhere. The retention department has the power to lower the rate for you. Of course, this doesn’t affect you if you pay off your credit balances off each month.


But these rate cuts also mean lower rates for your emergency cash savings in CDs and savings accounts. ING Direct now stands at 3.40% and Electric Orange is at 2.25% for balances up to $49,999 (if you want a free $25 for opening an account, let me know). FNBO Direct (which is where most of my emergency fund now sits) is at a still-great rate of 4.30%. WaMu’s online savings account now stands at 4.25%. HSBC Direct stands at 3.80%. You can check out Bankrate.com for the latest rates. But your emergency fund is not designed to make you money; it’s just there for an emergency and it’s nice to earn a little interest on it. But if you already have your 6 to 9 month emergency fund in place, it may be time to look at longer-term investments in the stock market. I absolutely love Roth IRAs and an index fund within a Roth IRA is perfect for most people! If you have a 401K offered by your employer, it may be time to increase your contributions.

One last thing to remember. Just because the rates are lower doesn’t mean you have to borrow. Remember that the goal is to save more and not spend or borrow more. But at the same time, there may be some opportunities to save some money. God Bless!

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7 Responses to “Fed Cuts Rates Again…Here’s Your Action Plan!”

  1. boby Says:

    i got a feeling the online banks will lower their rates sooner or later. So maybe lock some cash using CD laddering might be useful

  2. Absolutely! That’s a good idea.

  3. Keep the investments balanced. Stocks are great for long-term investing. You have to be willing to buy and hold and in most cased not go checking everyday.

    Keep some funds in “guaranteed” investments such as CDs, bonds, treasuries, etc.

    Great post.

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  5. Bob Says:

    Actually rates are rising on 30 year mortgages even though the Fed has lowered rates dramatically. The current national average for a 30 year mortgage as of February 28th, is 6.24% as reported by Freddie Mac and is at a three month high. The reason: Banks are driving the rates up because of “PrePayments”. They are afraid that people will refinance their mortgages at a lower rate (Prepayment) and they will lose income. As real rates go down, they want to keep the old mortgages on the books for as long as they can to profit from the spread.

  6. Yes, I agree that rates are now higher, but at the time of the post, the rates were actually going down with an Bankrate average of around 5.75% or so.

  7. cwxwwwxdfvwwxwx Says:

    well, hi admin adn people nice forum indeed. how’s life? hope it’s introduce branch 😉

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