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How Low Interest Rates Affect Your Money

Following the coronavirus pandemic, the Federal Reserve expects to maintain low interest rates for the foreseeable future. The Fed’s decisions affect nearly everyone because of one fact: It impacts consumers’ cost to borrow money. For example, when interest rates rise, the interest expense on variable rate debt balances generally rises.

Low interest rates can be beneficial to investors who currently have debt or need to borrow, as borrowing money becomes less expensive. In a low-rate environment, you often see lower interest rates on credit including credit cards, auto loans, private student loans, small business loans, and home equity lines of credit.

How does this translate to your finances? Consider the following:

  1. Lower interest rates may mean it is a good time to consider loan refinancing, which replaces your existing loan with a new one at a lower interest rate.
  2. For individuals with multiple loans, debt consolidation allows for paying off multiple loans with a new single loan at a potentially lower rate.
  3. Lower interest rates can also translate to a lower minimum payment on credit cards and a lower cost to carry a balance from one month to the next.
  4. For loans and mortgages, a low interest rate can mean lower monthly payments, ultimately resulting in less interest paid out over the life of the loan.
  5. Potential home buyers may also be able to find that they are able to borrow a greater amount, allowing them to get more house for the same monthly cost.
  6. By decreasing overall borrowing costs, a low-rate environment may also increase your savings. More money in your bank account could help you save more toward your emergency fund or invest toward a long-term financial goal.

One downside to lower rates is that banks typically pay customers lower interest rates on savings accounts, certificates of deposits (CDs), and money market accounts.

If you are unsure of how to navigate and explore investment options during this changing economic landscape, our experienced Financial Advisors at Jemma Financial can help.

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