What Falling Interest Rates Means for You

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08/07/2019 | 11:18 pm


By Julia Carpenter



Long-term interest rates are falling fast in the U.S. The 10-year Treasury dropped to 1.6% at one point Wednesday. It started the year around 2.7%.



Yields have declined for a variety of reasons: trade tensions, fears of slowing global growth and the prospect that the Federal Reserve, which cut short-term rates in July for the first time since 2008, will cut them further.



That has investors spooked. How does it affect everyone else?



Mortgages



The yield on the 10-year Treasury note is used as a benchmark for different types of loans, including mortgages. At 3.75%, 30-year fixed mortgage rates are at their lowest level since November 2016. For those who are considering refinancing, falling rates could mean it is a good time to do so. It also makes homes more affordable for those looking to buy using a mortgage.



Credit Cards



The average APR for new card offers has been on the rise and is currently 19.29%, according to WalletHub's survey of over 1,000 credit card offers. Falling interest rates could change that, helping consumers pay less in interest.



A decrease in interest rates can affect the average credit card APR, which is pegged to the prime rate. That is influenced more by what the Fed does with short-term rates than longer-term yields. When interest rates are high, those carrying a hefty credit card balance pay more.



Student Loans



Seeing interest rates move lower may make those with student loans hopeful -- but don't get too excited yet.



Interest rates for federal loans are set every May, based on the 10-year Treasury note auction and are fixed for the life of the loan. The rate for direct subsidized and unsubsidized undergraduate loans disbursed between now and June 30, 2020, is 4.53%. The latest lurch down in yields won't affect them. But if low yields continue, it could have an impact on loans for the 2020-2021 academic year.



If you have private education loans, however, you could pay less interest because those rates are tied to the London interbank offered rate.



High Yield Savings Accounts & CDs



The interest rates offered on savings accounts and many certificates of deposit move with the federal-fund rate set by the Fed. Many firms have already started cutting rates on high-yield offerings, with Goldman Sachs Group Inc. lowering its Marcus account to 2.15% and Ally Financial Inc. cutting its account to 1.9%. Robo advisers Betterment and Wealthfront have also lowered rates on saving products to 2.44% and 2.32% respectively.



According to the FDIC, the average APY on a one-year CD is 0.57%, but better offers are still around, including Marcus's at 2.5% and Barclay's at 2.45%.



Auto Loans



Most auto loans have fixed interest rates, which are pegged to Treasury yields. There isn't a direct line between Fed moves on short-term rates and what dealers and auto-lenders can charge. But you might be able to negotiate lower rates if you're currently looking to get a loan for a new car. The average rate on a five-year new car loan is 4.67%, according to Bankrate.com.



Write to Julia Carpenter at Julia.Carpenter@wsj.com





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