December 13, 2019

The Federal Reserve (“Fed”) met December 10-11, wrapping up 2019 with no rate changes and the anticipation that there won’t be additional changes in the coming year.

The Fed’s decision to raise or lower rates affects the everyday financial products you use that are tied to the Prime Rate. This includes things like credit cards, loans and savings account. Here’s how Fed changes affect your wallet: 

Your credit cards

The majority of credit cards are tied to the Prime Rate. If the Fed raises or lowers the Prime Rate, it will likely directly impact your current annual percentage rate by the amount of the change. With no Prime Rate change anticipated and rates holding steady, you’ll want to take advantage of this opportunity to pay down your debt before rates (and your payment) increase.

Your home equity lines of credit (HELOC)

HELOCs are typically priced according to the Prime Rate as well, so lowering Prime will lower your payment. Rates continue to be at all-time lows, so HELOCs are likely still an affordable financing option.

Your auto loans

Auto loans aren’t typically priced by Prime. Consumer confidence, auto industry sales volume and special offers at the dealership are more likely to change auto loan pricing. Since auto loans are almost always fixed rates, rate changes won’t affect your existing loans, just future loans. Plus, because of lower loan amounts compared to mortgage loans, the difference of a quarter percent in a car loan payment amount is fairly insignificant.

Your savings accounts

On the other side of your wallet, a low-rate environment could result in a decline in yields on deposit accounts, including savings, money markets and certificates. Savers may want to consider investing in certificates which pay a higher percentage yield. You may also want to learn more about certificate laddering.

Your mortgage

Although Fed rate changes don’t directly affect mortgage rates, they can affect what’s happening in the Stock Market, which could affect mortgage rates. With no major changes expected, rates continuing at all-time-lows, and property values and mortgage markets remaining strong, especially in the Bay Area, it’s still  good time to consider a refinance. We’re happy to help assess your mortgage situation with you with a complimentary consultation.

Although there continues to be talk about when we will experience the next recession, as a whole, the economy is stable and growing. Here at 1st United, we remain optimistic because of a positive year-over-year economic growth rate, strong labor markets with very low unemployment and strong consumer spending.  

We look forward to helping you plan for your financial future in 2020 and beyond.