The Federal Reserve‘s decision Wednesday to keep interest rates steady put the cap on a tumultuous year for consumers.
After raising the federal funds rate nine times in three years, with the last hike just one year ago as financial markets were melting down, concerns about a slowing economy and a looming U.S.-China trade war then caused the U.S. central bank to reverse course and cut rates three times over the last five months.
Meanwhile, everyday Americans have been caught in the middle.
The Fed’s recent moves impact consumers in many ways. On the one hand, lower rates have meant cheaper loans, which can impact your mortgage, home equity loan, credit card balance, student loan tab and car payments. But savers are also likely earning less interest on their savings accounts and, in some cases, losing buying power over time.
As the year ends, it’s a good time to consider whether your financial picture has improved over the last year, said Greg McBride, chief financial analyst at Bankrate.com.
“Look at your savings now versus the beginning of the year and your debt now versus the beginning of the year and asses whether you’ve made progress.”
With interest rates holding steady, “this is the time to pay down debt and boost savings,” he said.
Here’s a breakdown of how the Fed’s decision can help.
Most credit cards have a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.
On the heels of the previous rate moves, credit card rates now stand at 17.4%, on average, down from a record high of 17.85% when the Fed started cutting rates in July, according to Bankrate.
When the Fed cut short-term rates, the prime rate lowered, too, and credit card rates followed suit. For cardholders, that means they likely saw reduction in their annual percentage rate within a billing cycle or two.
However, “the recent rate cuts have only trimmed $2 per month off the minimum monthly payment towards the average debt,” according to Ted Rossman, industry analyst at CreditCards.com.
For those still struggling to pay down credit card debt, shop around for a zero-interest balance transfer offer, Rossman advised. “These offers last as long as 21 months and can be a tremendous tailwind for getting out of debt quickly at the lowest possible cost,” he said.
At any time, cardholders can also reach out to their issuer directly to request a break on interest rates
“People would be surprised how often that works,” said Matt Schulz, chief industry analyst at CompareCards.com.
As a result of preceding changes in interest rates, savings rates — the annual percentage yield banks pay consumers on their money — are now as high as 2%, up from 0.1%, on average, before the Federal Reserve started increasing its benchmark rate in 2015.
Still, “most savings is sitting in a bank paying 0.1%, and that’s losing buying power,” said Greg McBride, chief financial analyst at Bankrate.com.
With the Fed holding steady for now, savers won’t continue to see the same upward momentum, but they can still reap the benefits of those significantly higher savings rates by switching to an online bank, McBride said.
Online banks are typically able to offer the highest yields because they have fewer overhead expenses than traditional brick-and-mortar banks.
With an annual percentage yield of 2%, a $10,000 deposit earns $200 after one year. At 0.1%, it earns just $10.
Alternatively, consumers can lock in a higher rate with a one-, three- or five-year certificate of deposit (top-yielding rates average 2.1%, 2.1% and 2.25%, respectively) although that money isn’t as accessible as it is in a savings account and, for that reason, does not work well as an emergency fund.
“There are still some pretty good deals out there,” said Ken Tumin, founder of DepositAccounts.com. “Consumers should not think they missed the boat. “
As a result, mortgage rates are already substantially lower since the end of last year. The average 30-year fixed rate is now about 3.9%, down from 4.9% one year ago, according to Bankrate.
That means that if you bought a house last year, you may want to considering refinancing at a lower rate, McBride said, which would save the average homeowner about $150 a month.
“That’s where you get the biggest bang for your buck,” he added.
The Fed’s decision to leave rates unchanged means many homeowners with adjustable-rate mortgages, which are pegged to a variety of indexes such as Libor or the 11thDistrict Cost of Funds, or home equity lines of credit, which are pegged to the prime rate, will see their interest rate and monthly payments remain the same for the time being.
However, when the federal funds rate does move, consumers with HELOCs will feel the effects in their monthly payments within a billing cycle or two, according to Holden Lewis, NerdWallet’s home expert.
While some ARMs reset annually, a HELOC could adjust within 60 days.
For those planning on purchasing a new car, any Fed decision likely will not have any big material effect on what you pay. For example, a quarter-point difference on a $25,000 loan is $3 a month, according to Bankrate.
In addition, auto-loan rates are still relatively low, even after years of rate hikes. Currently, the average five-year new car loan rate is 4.6%, up from 4.34% when the Fed started boosting rates, while the average four-year used car loan rate is 5.34%, up from 5.26% over the same time period, according to Bankrate.
Since new cars are often financed by car manufacturers, these low rates will lower their costs, as well, and could mean car shoppers will see more favorable terms going forward, according to Tendayi Kapfidze, chief economist at LendingTree, an online loan marketplace.
“This means consumers may have an opportunity to not only find a better rate, but also negotiate a better price,” he said.
While most student borrowers rely on federal student loans, which are fixed, more than 1.4 million students a year use private student loans to bridge the gap between the cost of college and their financial aid and savings.
Private loans may be fixed or may have a variable rate tied to Libor, prime or T-bill rates, which means that when the Fed cuts rates, borrowers will likely pay less in interest, although how much less will vary by the benchmark and the terms of the loan.
If you have a mix of federal and private loans, consider prioritizing paying off your private loans first or refinance your private loans to lock in a lower fixed rate if possible.
(A college education is now the second-largest expense an individual is likely to incur in a lifetime — right after purchasing a home. The average graduate leaves school $30,000 in the red, up from $10,000 in the early 1990s.)