What a Fed cut means to you

The Federal Reserve is expected to cut interest rates today. That would be the ninth consecutive rate cut this year. Here's what this means to your wallet.

1) Tame your expectations

If you’re in the market for a loan today, the rate cut won’t mean very much to you. Of course when the Fed cuts the federal funds rate, that directly influences the prime rate. The prime rate right now is 4.5 percent. And that prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. But even though interest rates could fall to one percent, it doesn’t mean you’ll be reaping big reward. The good news is that the rate cut won’t necessarily hurt savers either. Rates on CDs have been stable for a while.

2) Shop around

Mortgage rates have been all over the place. Right now the 30 year fixed rate is at 6.28 percent. And  these rates are close to historic lows. So, the key is that you need to shop around. Check out small banks and credit unions if you are rejected for a loan from a bigger bank. That’s because smaller, more local banks don’t have the same kinds of problems on their balance sheets that bigger banks have. Of course no matter where you go, you will need a credit score of 720, and more realistically, a score of 750-780 to qualify for the best rates.

3) Watch the fine print

If you have a variable rate credit card, you probably won’t see much of a benefit from a rate cut. But you should be on the lookout for credit card companies switching you from a variable rate card to a fixed rate credit card. If this happens, you usually get 15 days of written notice and you may have the opportunity to opt out. Plus, a few credit card issuers have instituted what’s known as a credit card floor—it’s the interest rate your card can’t go past—despite how many interest rate cuts there are. And if you have a variable rate federal loan or a private student, chances are this rate cut won’t affect you very much either. In fact, Sallie Mae raised its interest rate on some private loans by two percent.

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