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December 2007 Interest Rate Cuts

What the Fed Interest Rate Cut Means For You

It's a big deal whenever the Federal Reserve decides it's going to cut rates, and not in the pretend way that Christian on Project Runway thinks he's a big deal. Think of the Fed as a really powerful puppeteer with Chairman Ben S. Bernanke as the leader, and instead of controlling weird puppets, they determine courses of economic action. The economy touches so many parts of your life and well being, so when the Fed makes an announcement, you should definitely care.

So, how does the Fed's quarter percent interest rate cut on Dec. 11 affect you? A quarter percent probably seems dinky, but consider that interest rates were at four and a half to begin with. You know how your boyfriend's bad day usually has a direct correlation with the way your night goes? Interest rates act the same way with yields you get on your savings accounts. Yields — the rate of return you get on things like money market accounts, online savings accounts, and certificates of deposits — dropped when the Fed cut the federal funds rate.

The good news is that if you have credit cards with variable rates tied to the prime rate, your APR would have come down a bit. The Fed made it a little cheaper to borrow money when they cut the federal funds rate, so your credit card company should have responded by making it cheaper for you to borrow money with your credit card. Banks follow suit in these situations by cutting their loan rates, which gives you the opportunity to negotiate lower interest loans.


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