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How the Federal Reserve Interest Rate Change Affects You

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Some people think that banks hold all the power when it comes to increasing or decreasing interest rates on things like checking or savings accounts. Instead, the Federal Reserve (“The Fed”) sets a target for the fed funds rate (the interest rate in which banks charge each other for overnight loans) and while banks can by law set any rate they want, they are heavily influenced to stay at or near the fed funds rate. Banks need to use fed funds to meet their federal reserve requirement each night if they don’t have enough reserves.

When the fed rates rise or fall, they can have a significant impact on consumers. In March 2020, in response to the global Covid-19 pandemic, the Federal Reserve announced that they are decreasing the interest rate.

How did the decrease in interest rate affect you?

When rates go down, it becomes cheaper to borrow, making purchases on credit cards for home mortgages or auto loans more affordable. On the other side, saving becomes less appealing due to the smaller interest earned. Many banks were forced to drop their interest rates significantly. What should you expect when the rates go back up? Although we may not be exactly sure when the rates are going to go back to normal, it is important to understand how both smaller and bigger interest rates affect you financially. When rates rise, there is more to gain when you save. Whether you put your money in a savings account or an interest-bearing checking account, you get the most out of this rate when you have a larger balance.

While there is nothing you can do to control the Federal Reserve’s rate changes, it is helpful to know why it matters to you as a consumer. Altering your behavior depending on the current rate can help you save money and better prepare for the future.

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Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,584 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,190 for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2024 and are subject to change without notice.

Checking a rate through us generates a soft credit inquiry on a person’s credit report, which is visible only to that person. A hard credit inquiry, which is visible to that person and others, and which may affect that person’s credit score, only appears on the person’s credit report if and when a loan is issued to the person. Credit eligibility is not guaranteed. APR and other credit terms depend upon credit score and other key financing characteristics, including but not limited to the amount financed, loan term length, and credit usage and history.  

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