Fed rate updates, history and impacts

Learn today's rate and how the Fed's changes affect credit cards, car and personal loans, savings and checking accounts and other financial products.

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Anna Serio
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1%

Fed rate cut

to 0—0.25% on Tuesday, March 16, 2020

The federal funds rate, often called the fed rate, is a benchmark interest rate banks charge one another for overnight loans. Many financial services rely on the fed rate to set their own interest rates on products from credit cards to CDs.

When the Federal Reserve cuts interest rates, it generally means you pay less interest on debts — but earn less on products like savings accounts.

Fed rate basics

  • Current rate: 0%–0.25%
  • Last changed: Decreased 1% on March 16, 2020
  • Next announcement: March 18, 2020

What is the federal funds rate today?

The current federal funds rate has a target range of 0% to 0.25%. The Federal Reserve cut rates twice in March 2020 to stimulate economic activity, after a stock market slump over fears of the economic impact of COVID-19. The second rate cut, on March 16, also came with a $700 billion securities program and a short-term lending rate cut to further stimulate the economy.

Typically, fed rate cuts are a response to a slowing economy, which was the case with the most recent rate cut. But it had been cutting rates despite a strong economy, starting on July 31, 2019, dropping the rate 0.25% from the previous range of 2.25% to 2.5%. This was partially in response to trade wars with China and the prospect of the UK withdrawing from the EU. It cut rates by the same percentage on September 18, 2019 and again on October 30, 2019.

Rates stayed the same after the last Federal Open Market Committee (FOMC) meeting, on January 29, 2020. Officials had expect rates to stay the same for the rest of the year.

History of the federal funds rate

Who sets the federal funds rate?

The Federal Open Market Committee (FOMC) sets the federal funds rate, which meets eight times a year. The next meeting is scheduled for March 17 and 18, 2020.

However, the FOMC doesn’t necessarily change rates each time it meets. It only changes rates if the economy calls for it. It can also cut rates outside of a scheduled meeting to help prevent an economic crisis.

How is the federal funds rate set?

The FOMC sets the federal funds rate based on the state of the economy.

  • It decreases the federal funds rate when the economy is doing poorly, making financial products more affordable to consumers in an effort to increase economic activity.
  • It increases the rate when the economy is doing well to slow inflation.

How does the rate cut affect me?

A fed rate cut is often good news for consumers, because it often means lower interest rates across the board. That’s because the federal funds rate influences other benchmark rates like the Wall Street Journal Prime rate, which affect the rates you get on a loan or credit card. However, this doesn’t happen overnight — it’s up to financial institutions to adjust their own interest rates as they see fit.

Other products might become less expensive as well, since the fed rate can make business loans more affordable. But lower rates also mean you might not earn as much interest as before on bank accounts or CDs.

Adjustable-rate mortgages are often tied to the WSJ Prime Rate, which means you could see a change in the rates you pay. However, fixed-rate home loans generally follow the 10-year treasury yield — another benchmark rate — and aren’t necessarily affected by the fed rate.

If the rate rises

Got an adjustable-rate mortgage? You’ll likely pay more interest if the rate increases, which means higher monthly repayments. Fixed-rate mortgages might also increase for new borrowers if the rate change is a reaction to economic circumstances that affect other rates.

If the rate gets cut

Monthly repayments can decrease on adjustable-rate mortgages. New buyers might qualify for more favorable adjustable rates. Interest on new fixed-rate mortgages generally isn’t affected unless there’s a large economic change.

If the rate doesn’t change

Rates stay the same for both fixed-rate and adjustable-rate mortgages. Fixed-rate mortgage rates might increase or decrease if the 10-year treasury yield changes, however.

The fed rate affects interest rates on all variable-rate personal loans and new fixed-rate loans.

If the rate rises

Variable rates generally increase on all loans, which means you’ll pay more each month. Hold off on taking out a new fixed-rate loan — you’ll be stuck with a higher rate throughout the life of the loan.

If the rate gets cut

You pay less interest on variable-rate loans. This is a good time to take out a fixed-rate loan, because that low APR won’t budge — even if the fed rate increases while you’re paying back the loan.

If the rate doesn’t change

You’ll likely pay the same interest rate you had on all fixed- and variable-rate loans.

Credit cards come with variable rates that are typically based on the prime rate, which is tied to the fed rate.

If the rate rises

You’ll typically pay more interest on your credit card balance than before. Cash advances also become more expensive.

If the rate gets cut

You generally pay less interest on your credit card balance than before. Cash advances also become less expensive.

If the rate doesn’t change

You pay the same rate you already were paying.

How a fed rate update affects credit cards

The fed rate affects only checking and savings accounts that gain interest.

If the rate rises

You earn more interest on the balance of your checking and savings accounts with an APY — or annual percentage yield.

If the rate gets cut

You earn less interest on the balance of checking and savings accounts with an APY.

If the rate doesn’t change

You earn the same amount you were earning before on all checking and savings accounts.

What to do with your savings after a Fed rate cut

How much you earn from certificate of deposits (CDs) can be affected by the fed rate. Other factors like inflation or changes to the 10-year treasury yield can also cause your rate to rise or fall.

If the rate rises

You might earn as high of a yield on your CD as before — unless other influential rates decrease.

If the rate gets cut

You could earn higher yields on your CD than before, barring increases in other interest rates.

If the rate doesn’t change

Your CD might not change either, unless other aspects of the economy change.

What other products might it affect?

The fed funds rate tends to affect the whole economy. For example, the stock market typically rises or falls along with the federal funds rates. Experts consider it an indicator of the state of the economy.

Life insurance companies tend to charge more when the fed rate decreases and less when it goes up. Loans and lines of credit — including private student loans and business loans — also come with rates that increase or decrease along with the fed rate.

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