The recent decision by the Federal Reserve to reduce interest rates to zero raises important questions for everyday consumers.

On March 15, the Federal Reserve revealed it would lower interest rates to a range of 0% to 0.25%, down from 1% to 1.25% just weeks before. This drastic move aims to stimulate the economy amid the challenges posed by the coronavirus pandemic, which has significantly disrupted economic activity.

Additionally, the Fed plans to acquire at least $700 billion in government and mortgage-related bonds to mitigate the economic fallout from COVID-19. This rate cut, part of a broader strategy known as “quantitative easing,” is one of the most aggressive measures since the financial crisis of 2008.

What does this mean for you? Essentially, lower interest rates make borrowing more affordable for both individuals and businesses. This scenario presents a chance for borrowers to take advantage of cheaper loans while encouraging savers to seek the best yields available.

EXAMINE YOUR SAVINGS RATES

If your savings account offers less than 0.1% interest, it’s time to explore better options. Even before this rate cut, many online banks provided rates exceeding 2% on one-year CDs with a minimum deposit of $500. The federal funds rate directly influences the returns on savings and CDs, so comparing options like 5-year CDs or a CD ladder strategy could be beneficial.

BOOST YOUR YIELD: Check savings account offers through our partner, Fiona, to find better deals.

Impact on Mortgage and Loan Rates

While mortgage rates don't move in lockstep with the federal funds rate—they correlate more closely with the 10-year Treasury—they have been on a downward trend, now hovering below 4%. This is a significant drop from rates consistently under 5% for the past decade.

Besides mortgages, other loans such as auto and student loans may also provide opportunities for savings. Consider refinancing these loans or negotiating lower rates on credit cards, either by directly asking your lender or transferring balances.

BOOST YOUR CREDIT SCORE

Your credit score plays a crucial role in determining your loan interest rates. To secure the best possible rates, aim for a score of 760 or higher. Unsure of your score? Several credit card companies, including Amex and Discover, offer free credit scores as a perk. You can also check your score through services like Credit Karma and Savvy Money.

Your credit scores should be free. Access your scores anytime without cost. Credit Karma

Additionally, you can obtain a free credit report from each major bureau once a year by visiting annualcreditreport.com. If you discover inaccuracies, report them to the bureau to address potential issues affecting your score.

If your score is lower than desired, focus on timely bill payments and develop a plan to reduce any outstanding credit card debt. Aim to use only 10% to 30% of your available credit limits. Avoid unnecessary credit applications and think twice before closing old accounts that don’t have annual fees. Improving your score takes time, but consistent responsible behavior can yield results in 12 to 24 months.

REFINANCE AUTO AND HOME LOANS

Refinancing an auto loan is one of the simplest financial moves you can make. It often takes less than an hour, and current rates are generally lower than those you may have secured previously. According to ValuePenguin, the average interest rate on a 48-month auto loan from a commercial bank has decreased by over 40% in the last decade. Credit unions typically offer competitive rates, so use online tools to compare local lending options.

Home loan refinancing is a more complex process but can be worthwhile, especially if your credit score has improved. With current mortgage rates under 4%, consider refinancing to reduce your rate. Just ensure you plan to stay in your home long enough to outweigh closing costs with the savings from the lower rate. Utilize Fannie Mae’s refinance calculator for assistance.

CONSOLIDATE STUDENT LOANS

Student loan debt in the U.S. exceeds $1.52 trillion, affecting approximately 45 million borrowers, as reported by Student Loan Hero. Many borrowers pay more interest than necessary, so refinancing federal student loans with private lenders might help secure lower rates.

Most borrowers have varying interest rates on their loans. Only refinance those that will provide long-term savings. Remember, refinancing federal loans to private lenders can result in losing essential protections and benefits, including loan forgiveness programs for public service workers.