Just this past weekend, the Federal Reserve lowered its short-term benchmark rate to a range of 0%- 0.25%. We last saw rates in this range from 2008-2015 as our country worked its way through a recession. The rate change can spark a lot of questions, and as your friendly community bank, we're happy to give you answers!
Why does the Federal Reserve rate exist?
Like people, banks can borrow funds from the Federal Reserve to lend to their customers. The Federal Reserve manages the cost to borrow money by raising and lowering the Federal Reserve rate. In other words, a low interest rate from the Federal Reserve makes borrowing money easier and more affordable to banks, which in turn makes it easier to lend money to people who need it. Since demand can increase due to unique situations like the recent COVID-19 outbreak, lowering the Federal Reserve rate is the "Fed's" way of stepping in to help as people need loans to get through tougher times.
How long will the rate be this low?
No one has a crystal ball, unfortunately. The rate could stay low for months or even years, or they could change it next week! The Federal Reserve will continue to react to the state of the economy, and more importantly, to the people in that economy, and their needs, and alter the rate based on what they think will be most helpful to banks and their customers.
Does this mean I'll be seeing mortgage rates or car loan rates drop?
If fixed mortgage rates or car loan rates would rise or fall, it would not be because of the Federal Reserve's change to rates, because these rates aren't tied to the federal reserve rate. Banks set loan rates for mortgages and personal loans based on the 10-year treasury note, which recently fell to record lows in March, 2020.
What about my credit card interest rate? Could THAT change?
A decline in interest rates in general (again in reaction to the economy, but not the federal reserve rate) can sometimes affect a credit card’s annual percentage rate. These rates are usually based on a broader market rate such as prime plus a “margin," and they might change in the months to come.
If the Federal Reserve rate stays low, will my Savings Account or CD yield rate change?
Interest rates offered on savings accounts such as money market accounts, certificates of deposit (CDs) and interest-bearing savings accounts do move with the Federal Funds rate. Since 1899, PWSB always has and will continue to monitor the competition and bring our customers competitive rates.
I still have questions, who should I speak with?
We are full-service at PWSB. We service all of our mortgages here in Ozaukee County, so the good news is, you can find answers with just a phone call or an email. We are here to answer questions simply and clearly, and we want to be your source of help now and in the future.