Fact Checked

Fed zeroes out rates amid coronavirus concerns: What this means for you

Jerome Powell giving a press conference amid Coronavirus concerns Photo by Mark Makela/Stringer/Getty Images News/Getty Images Image: Jerome Powell giving a press conference amid Coronavirus concerns

Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors' opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Read our Editorial Guidelines to learn more about our team.
Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

For the second time in two weeks, the Federal Reserve has responded to coronavirus concerns by cutting the federal funds rate — dropping it to between 0% and 0.25%.

Fed committee members voted 9–1 for the additional 1% cut on Saturday. The last time the Fed cut rates to this level was December 2008 in order to contain damage from the Great Recession.

In a statement, the Fed made it clear the current situation is both urgent and unprecedented. The agency said another rate cut was needed until policymakers are “confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

This latest rate cut may or may not mean lower interest rates for some home or vehicle purchases, personal loans or mortgage refinancing. And if you’ve got a high-yield savings account, you may see the interest rate drop. Read on to learn more.

Want to know more?

Why did the Fed think another cut was necessary?

You might remember that the Fed cut rates three times last year in response to global economic uncertainty, and then planned a “wait-and-see” approach that allowed for action in times of emergency.

The coronavirus pandemic is just such a time. For example, stocks continued to react wildly to announcements by the Fed. The Dow Jones Industrial Average — the most well-known U.S. stock index used to evaluate the market — saw its second-biggest single-day drop ever on Monday following the latest Fed action.

The Fed’s latest rate may encourage people to spend and invest in these uncertain times — actions which typically help stimulate economic growth.

What could the latest rate cut mean for you?

Life isn’t normal for many Americans right now, but there are still day-to-day finances to deal with. Here’s what you might see following the Fed’s latest rate action.

  • Interest rates on new mortgages, mortgage refinances, personal loans and other new credit accounts may be lower than before — or not, given a big increase in demand at the same time.
  • Rates may drop on credit cards, credit lines and loans with variable APRs — for example, if your home loan is an adjustable rate mortgage or you have a credit card with a variable rate.
  • Interest rates on savings products, like savings accounts and certificates of deposit, will likely go down — meaning the money you save will earn less interest, at least for a while.

Responding to the rate cut: What can you do?

Here are things to consider in light of the Fed’s latest rate cut.

  • If you’ve been looking into buying a car or a house — or refinancing an existing mortgage — watch those loan interest rates to see if they drop further (they may or may not). Keep in mind that an increase in demand, due to low rates, could be making these products harder to get.
  • Check the terms on your current credit accounts to get an idea of whether the APRs might go down. It can’t hurt to call your credit card issuer and ask if it will lower your APR in light of the Fed’s rate cuts, given how high credit card APRs have been climbing recently.
  • Evaluate your budget and keep building up an emergency fund and other savings if you can. Also, with interest rates falling, you might consider switching from a regular savings account to a high-yield savings account. This may help you earn a bit more interest on your savings than with a traditional savings account.

If you want to keep up with what the Fed might be planning for interest rates, you can follow its meeting calendar and statements here.