Credit News

On January 22, 2008, the Fed decided to cut the Federal funds rate a whopping 75 basis points to a scant 3.5 percent, the lowest it's been since August 2005 (Source: federalreserve.gov). Although talks in the news and among policymakers have been centered around countering a potential recession, the unabashedly selfish (nonetheless, important) question for you may be "What does this mean for me?" Here’s a quick cheat sheet for managing your finances after the Fed's decision:

Loans
The effects of the Fed funds rate cut should be seen most noticeably in short-term adjustable rate mortgages (ARMs). While a drop in rates will be more evident over the next few months, those who will benefit most immediately will be those with ARMs whose introductory fixed rate period is ending. Because the rate adjustment period is beginning on these loans, the rate cut will be reflected in the newly assessed rate. However, those with ARMs who are in their introductory fixed rate period could potentially see the benefits of the lowered rates over time.

Savings
Think about locking your money into a CD today before rates have an opportunity to adjust to the Fed rate cut. Because CDs flaunt fixed rates, this may be a smart move if you suspect rates will drop further. Due to the volatile stock market, be sure to choosing a savings product with an FDIC-insured institution to ensure that you never lose your initial deposit. Check online for the most competitive offers. Pay close attention to promotional and teaser rates from various financial institutions. Regardless of the rate environment, banks almost always offer impressive rates on CDs , money market accounts , and high-yield savings products to attract new customers. Even if you have an institution you already enjoy banking with, do your research and check online for current promotions. Be sure to use the tools available to you to stay up-to-date with the most current rates being offered . Checking rates regularly and staying informed of what rate changes mean for you can help you properly gauge what is best for your situation.

Source: Informa Research Services

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