Do the Fed’s rate cuts really help you?
May 1, 2008 by Tisa Silver
Filed under Finance
The Fed Funds target rate was cut by another 25 basis points yesterday, taking the rate from 2.25% down to 2%.
But, a lower Fed Funds rate doesn’t necessarily mean lower interest rates for all. This target rate adjusted by the Fed is a guideline for the rates charged between large banks, for large loans.
The rate which many consumer loans (i.e. credit cards, home equity lines of credit) are linked to is the “prime” rate. Prime moves right along with the Fed Funds rate, like a mirror… but one of those not-so flattering, camera adds 10 pounds (or 300 basis points) kind of mirrors.
You’ve got to figure that if a bank charges its peers prime, then it will charge you prime and then some. “And then some” depends on how good or bad your credit is.
Some rates move in tandem with the Fed Funds rate, others don’t. Whether the Fed’s cuts help you depends on the nature of your loans (i.e. fixed or adjustable) and the rate(s) they are linked to.
Have the Fed’s cuts helped you?
