1. Those in debt are interested in interest rates, since as short-term rates rise, the variable consumer debt based upon them also rise. This means that less money goes toward principal reduction, and more goes to making interest payments. As a result, those who are in debt should be interested in paying off as much as they can before short-term interest rates rise.
2. Those with cash investments are also interested in short-term interest rates. CDs, savings accounts and money market accounts are connected to short-term interest rates. Right now, cash investments have been yielding rather low returns, since short-term rates are so low. When interest rates head higher, so do returns on cash investments. It is a good idea to invest when interest rates are higher, and lock in rates on CDs before they drop.

Ben Bernanke has already said that he does not expect to raise interest rates until sometime next year. However, many are waiting to see if the Fed decides to expand its quantitative easing program (with rates near 0%, there is no way for a rate cut). If this happens, the threat of inflation grows, and the chance of higher interest rates — in order to combat inflation — kicks in. While Bernanke doesn’t expect to raise rates til next year, conditions could change if the economic recovery picks up quickly in the near future.

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Post from: EveryJoe

When Will Interest Rates Rise Again?

For people with cash investments (savings accounts, CDs, money market and the like), this is a bit of a bummer. On the other hand, people with consumer debt have something to cheer about: With interest rates remaining low, more of your credit card and home equity line of credit payments will go toward reducing your principal.

If you are working on getting out of debt, now is a great time to participate in aggressive debt reduction. Instead of eating up your payments with interest charges, chances are that you can make a bigger impact on your debt right now.

Go ahead. Make that extra credit card payment. It will help you in the long run.

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Post from: EveryJoe

Rates Remain the Same: Get That Consumer Debt Paid Down

My main issue is inflation right now. Food prices inflation and gas prices are issues in terms of household budget. And other inflation could rise as well. That’s what happens when interest rate cuts like this are made.

Stocks

On the plus side, stocks are up in anticipation of seeing the benchmark rate at a low 2%. So that means my  investment portfolio will get a boost. Unfortunately, I’m a long-term investor, so the little blips that this sort of thing promotes doesn’t really benefit me all that much.

Cash

This is a real bummer for me. Until last fall, I was enjoying a 5.5% return on my savings account. Now it’s not even close. I don’t have a ton of cash investments, but I do have them to limit risk to my investment portfolio. And I use them to build my emergency fund. Which won’t be growing as fast.

The good news for those with credit card debt, though, is that this will drop those rates a bit. Now is a great time to get out of debt, since more of your payment will go toward the principal and less toward interest charges.

Are you excited about the interest rate cut?

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Post from: EveryJoe

Why I’m Not Excited About Today’s Interest Rate Cut

After the Fed’s rate cut Tuesday, banks quickly cut their prime rate — the rate they charge their best customers — to 6.5 percent. The prime rate also serves as a benchmark for credit cards and home equity loans, and those borrowers will benefit from lower rates.

Others to benefit include those with ARMs. Adjustable rate mortgages will have lower payments thanks to yesterday’s move, making them manageable for some of those experiencing mortgage resets.

For those with savings accounts and CDs, however, the news isn’t as rosy. Cash investments will yield less, and those whose retirement income relies on them may find inflation eating away at their returns.

Post from: EveryJoe

Who Benefits From Yesterday’s Fed Rate Cut?