Here’s how the Fed decision impacts your wallet

The Federal Reserve on Wednesday kept its benchmark interest rate at zero to continue to support the economic recovery from the coronavirus pandemic.

The decision comes just days after the $1.9 trillion American Rescue Plan was signed into law, adding even more stimulus to boost the U.S. economy.

In addition, vaccinations are ramping up — so far, more than 110 million Americans have been given the Covid-19 vaccination, according to data from the Centers for Disease Control and Prevention. And, more adults will be eligible to get vaccinated soon. In a March 11 speech, President Joe Biden asked that all states make all adults eligible for the vaccine by May 1.

Still, even with the economic recovery underway, the central bank is committed to supporting the rebound. That means that historic low rates will likely stick around for a while. The Fed indicated Wednesday that any interest rate hike is unlikely through 2023.

“They are going to stick to their guns this time and they’re not going to raise rates prematurely,” said Robert Frick, corporate economist at Navy Federal Credit Union.

While the federal funds rate is not what consumers pay — instead, it refers to what banks charge one another for short-term lending — it does have an impact on what you pay for various types of credit.

A good time to refinance a mortgage

Consumers can save themselves money if they refinance existing debt for a lower rate. For example, mortgage rates, which loosely follow the 10-year U.S. Treasury bond, were one of the beneficiaries of the Fed’s rate moves last year.

Still, mortgage rates have crept higher in recent months after reaching all-time lows, putting some pressure on anyone holding off on refinancing to get it done soon.

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“If you procrastinated on refinancing, it’s time to act now,” said Greg McBride, chief financial analyst at Bankrate.

Even if you missed the all-time low, it’s important to remember that current mortgage rates are still a great deal, said Frick.

“People have been spoiled by getting sub-3% loans,” he said. The popular 30-year fixed-rate mortgage on Tuesday had a 3.38% rate, according to Mortgage News Daily.   

Other loans can also be refinanced

Beyond mortgages, people can also save by refinancing auto loans, something that’s often overlooked, according to Frick. For those with the best credit scores, rates on a new car loan can be as low as  4.08%, according to Bankrate.

“It doesn’t take nearly as long as refinancing a mortgage,” said Frick. “If you can save yourself $1,000 just for getting a little bit of paperwork or more, then you should absolutely do that.”

In addition, new credit cards may have lower interest rates, and banks may give lower rates on personal loans, according to Tendayi Kapfidze, chief economist at LendingTree. For borrowers with excellent credit, average personal loans are between 10.3% and 12.5%, according to Bankrate.

“Lenders got very conservative last year, but that’s started to ease up a little bit,” said Kapfidze.

That means people could potentially save by consolidating credit card debt or paying it off with a lower-rate personal loan.

Those with student loan debt may also be able to take advantage of the environment and refinance for a lower rate. This is only a good idea, though, if one has private loans that have not been paused by the lender — federal loans are currently deferred because of the coronavirus pandemic.

“Take action now — because, if not, you’re leaving money on the table,” said Kapfidze.

A moment for personal finances

To be sure, low interest rates aren’t good for everyone, particularly savers, said Frick.

Indeed, brick and mortar banks generally offer savers an average 0.7% annual percentage yield for deposit accounts, while rates at on-line banks tend to be slightly higher.

Still, some consumers may be in a unique situation to overhaul their balance sheets in the coming weeks given the low-rate environment, the third round of stimulus that’s coming and the fact that it’s tax season, meaning that refunds are also on the way to many Americans.

“For a lot of households, they’re going get one, maybe two big windfalls here in the coming weeks,” said McBride. “That’s two great opportunities to make notable headway on your finances.”

This likely wouldn’t impact those who have been hit hardest by the pandemic and have struggled to get by, said Frick. But those who have kept their jobs and been able to trim expenses could have a big opportunity to reset their finances by paying off debt and boosting savings.

“That’s a game changer,” he said.