What Near-Zero Rates Mean for You

On Sunday, the Federal Reserve cut its short-term benchmark rate by 1 percentage point to near zero ahead of its scheduled March meeting to fight the economic fallout of the coronavirus pandemic.

The move lowers the federal-funds rate to a range between 0% and 0.25%. It is the second emergency rate cut in recent weeks. The Fed said it would hold these rates until the economy has weathered recent events.

Last year, the Fed cut rates three times to keep the U.S. economy moving amid slowing global growth and trade tensions. This year, economic disruptions from the coronavirus epidemic has unsettled global financial markets, with policy makers slashing rates in response.

Interest rates affect the cost of borrowing, so falling interest rates can ripple through the cost of mortgages, the interest earned on savings accounts and more. A few things to watch for:


Following the Fed’s first emergency rate cut, mortgage rates fell to their lowest level on record. For the week of March 12, the average rate on a 30-year fixed-rate mortgage moved up slightly to 3.36%, mortgage-finance giant Freddie Mac said. The 15-year fixed-rate mortgage dropped to 2.77%.

Mortgage rates are closely linked to yields on the 10-year Treasury, which fell to record lows earlier this month and is now below 1%. Mortgage rates could drop more, though they don’t always move in lockstep with the government benchmark. With rates trending down, whether it makes sense to refinance a mortgage now comes down to a host of personal factors.

Credit Cards

A decline in interest rates can sometimes affect a credit card’s annual percentage rate, or APR, which is based on a broader market rate plus margin.

The average margin was 12.13 percentage points on interest-charging cards in November, according to an analysis of Federal Reserve data by WalletHub.com, a consumer finance website. The Fed rate cut could help lower interest rates, as long as credit-card lenders don’t continue to increase the margins they charge.

Credit-card balances totaled $1.09 trillion in January, hovering around a record high, according to the Fed. The average annual percentage rate on interest-charging cards was 16.9% as of November, according to the Fed.

“Those rate cuts are happening for borrowers, but with a lag,” said Greg McBride, chief financial analyst at Bankrate.com. “It doesn’t happen immediately. It can take two or three statement cycles before that lower rate shows up.”

Auto Loans

Auto loans have fixed interest rates, which are pegged to Treasury yields, but the falling interest rates won’t predict what dealers and auto-lenders can charge for your loan. For the week of March 11, the average rate on a five-year new car loan was 4.46%, according to Bankrate.com.

“Auto loans haven’t been as rate sensitive in recent years,” said Mr. McBride. “There’s been lots of competition. We saw very modest increases and decreases between 2015 and 2019 following Fed action.”

If you’re considering buying a new car or trading up, pay attention to car prices and your existing debt load: Many Americans are now taking out auto loans that last longer than six years, according to Experian PLC, and buying new cars with negative equity.

High-Yield Savings Accounts & CDs

The interest rates offered on savings accounts and many certificates of deposit move with the federal-funds rate.

According to the FDIC, the average annual percentage yield on a one-year CD is 0.46%, and firms are continuing to cut rates on high-yield offerings.

Student Loans

On Friday, President Trump said the government would stop charging interest on federal student loans immediately as part of the relief measures related to the coronavirus epidemic.

With the 10-year Treasury note below 1%, the action could have an impact on loans distributed for the 2020-21 academic year. The interest rates on federal student loans are set every May, based on a 10 year Treasury note auction. The rates are fixed for the entire life of the loan.

The latest drop in interest rates won’t currently affect those with federal student loans. The rate for direct subsidized and unsubsidized undergraduate loans disbursed between now and June 30, 2020, is 4.53%.

If you have private education loans, though, Mr. Trump’s interest waiver won’t apply, and you could consider refinancing in a low rate environment and pay less interest.