Interest Rates Are Close to Zero: Here’s What You Should Do

The federal funds rate influences the majority of other interest rates, and this important number serves as a benchmark that lenders often use when they offer you a loan. Earlier this year, the Federal Reserve said that it would strive to maintain the interest rate at or around 0% while people continue to focus on economic recovery from the pandemic. Since then, the interest rate has stayed within the range of 0-.25%, and a recent update from the Federal Reserve shows that the goal is to keep the rate low for the foreseeable future.

While the federal funds rate is technically what banks charge each other for short-term loans, you’ll find that it affects your finances in several different ways. Taking advantage of the extremely low interest rates now can help you strengthen your financial standing as the world begins to recover from the economic losses that occurred as a result of the coronavirus.

Consider Refinancing Your Home Loan

Mortgage loan rates are heavily influenced by the federal fund rate, and homebuyers are able to enjoy an average interest rate of 3% right now. Since the rate has fluctuated over the years, it is possible that you bought your house when it was much higher. Depending upon your current interest rate, refinancing could lower your monthly home payment by several hundred dollars. When you consider that your home loan terms are either 15 or 30 years, you can see just how much you’ll be able to save over time.

Regain Control Over Credit Card Debt

Many credit cards have some of the highest rates around, and it isn’t uncommon for someone to carry debt with an interest rate over 15%. Unfortunately, you won’t be likely to lower your credit card rates to near zero, but you can shave off several percentage points right now. Similar to your mortgage, this can also help you to lower how much you pay each month and minimize how much you pay while you still owe money to the lender.

Refinance Private Student Loans

Some private student loans have variable rates that are influenced by the federal benchmark rate, and it is possible that you are paying more than you need to right now. Refinancing both variable and fixed rates can help you to pay down your student loan debt faster, especially right now while federal loans are set at 0% interest. Although the government is currently giving student debt holders a break on making payments, it is best to continue paying down your debt while you can to take advantage of not having to cover the cost of interest.

Make Essential Purchases

Normally, you want to focus on saving as much money as you can during times of economic hardship. However, there may be some unavoidable purchases that you’ve been putting off. For example, you might want to take out a home equity line of credit to remodel or make major repairs on your house. Or, you might be in need of a newer, more reliable car. Taking out a loan right now while the interest rates are low can help you pay less for your purchase than you might if you wait another year.

The ability to enjoy low interest rates makes your financial future a little brighter. As you enjoy the benefit of being able to save more money, remember that zero interest student loans could extend your ability to pay down debt and improve your financial standing. Having more of your payments go towards the principal makes it easier to eliminate the burden of debt and start building up your savings and retirement accounts.