The Advantages Of Falling Interest Rates

By Author: Allysa Marks
Total Articles: 11
Comment this article

Our encounters with debt conditions and money negotiating methods with the debt relief firms and debt settlement companies have made us aware of the major financial aspects of economy and how they influence our personal finances as well. Interest rate in that sense plays a crucial role. The Federal Reserve regularly monitors economic conditions and has the ability to raise or lower key interest rates that trickle down and affect everything right down to your savings account. However falling interest rates may prove to be a hidden boon for us with several financial opportunities. Before we come to those benefits, let’s know why federal reserves make these decisions in the first place. The Federal funds rate is the interest rate in which banks charge each other for loans on their excess reserves. Interest rates increase in an effort to make borrowing money less-attractive and slow a rapidly growing economy. This is done because excessive growth and business expansion can lead to increased inflation. On the other hand, when the economy weakens, the Fed may decide lower interest rates. Lowering the rate will make money flow more ...
... freely and hopefully stimulate economic growth. Lower interest rates make it really affordable for the consumers to borrow money. Whether it is the rate on your credit card, mortgage, auto loan, or any other type of loan, you generally enjoy these lower rates. However, a trend of decreasing rates is likely a response to a weakening economy. This means that other investments such as stocks or real estate have probably not been faring very well in recent months or years. In addition, lower interest rates also affect things like your savings account. So while you may be paying less to borrow money, you’re also being paid less to lend or deposit money. When interest rates begin to decline, one of the first places to take advantage is with your high-interest credit cards. Keep in mind that when the rates decrease, it can take quite a few months or even years to trickle down to all aspects of your finances. But by planning ahead for this trend, you can position yourself to save money on your credit card payments.
For those who are looking to buy a home, decreasing rates is certainly a good thing. While mortgage rates aren’t directly linked to the Federal funds rate, they do generally follow over time. Of course, lower mortgage rates mean you can get into the house you want while saving money on interest. If you already own a home and purchased it when the rates were a bit higher, this could be an opportunity to refinance. Even being able to shave a point off of your mortgage rate could mean freeing up an extra couple hundred dollars a month. Clearly, low interest rates are great for borrowing money, but when it comes to trying to earn money on your savings, it isn’t to your advantage. When it comes to savings accounts, certificates of deposit, and bonds, they typically feel the effects of an interest rate cut much faster than credit cards and loans. Thus, if your savings account rate is dropping, you should be on the lookout for higher paying alternatives.

Allysa Marks has a degree in finance and presently sharing her knowledge to help others in order to get debt relief. She is also writing about debt consolidation companies and free debt consolidation help to eliminate the debt woes and help people to build wealth.