Lower Interest Rates – The Good & Bad of Federal Rate Cuts

April 16, 2008

When people think of lower interest rates the first things that often come to mind are the benefits of lower mortgage payments, better car loan rates, and reduced credit card interest charges.  Of course for those that are saving instead of borrowing the rate drops mean earning less money at the bank.

The Fed has cut the federal funds rate six times since last fall and while some people are taking this opportunity to refinance their homes and other loans others aren’t seeing a rate reduction at all. Some economists have a very negative opinion of the rate cuts, they believe the cuts will contribute to inflation and continue to weaken the American dollar. 

Pay Less on your Debt
So what do lower interest rates mean to you personally?  If you have any debt, why not take advantage of this time to get a lower rate on the money you owe?  Of course this new rate won’t be handed to you, you’ll have to seek it out.  If your credit card company won’t negotiate simply explain that you’d be more than happy to take your business elsewhere. 

You can also look at refinancing your debt, just be wary of adjustable rate mortgages since they’re what got many people into problems over the last year or two.  Keep in mind the low rates won’t last forever.

Earn the Highest Interest Available
Saving money on debt is wonderful but won’t if you don’t have any? The trouble for you is that low interest rates are also creating lower returns for the money you have stashed away in the bank. The online savings accounts often offer the best rates, use bankrate.com to find the highest yielding bank accounts. 

Don’t forget about the bank where your current savings are held either, shop around your local banks to see who has the best rate or is offering a promotion.  You don’t have to go through the hassle of switching banks, just open a new account and move over your emergency fund or other big chunk of money.

Leverage Some Money
If you have time take advantage of the cheap money available by borrowing some and trying to turn it into more money.  You could start off simple by starting your own eBay store or looking into other types of home based business you can run on the side.

Lower interest rates are a double edged sword, bringing along some good and some bad depending on whether you’re borrowing money or lending it out to banks.  Obviously we can’t control the economy but we can control how we respond to it’s changes by borrowing at the lowest rates possible and lending at the highest possible rates.

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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