Making the Most of Lower Interest Rates

For almost a year now, the Fed has slashed the key fed funds rate from 5.25% all the way down to the current 2%. This is a fairly significant drop in a short amount of time, and while rates aren't expected to continue to drop, the Fed won't likely increase the fed funds rate as drastically as it was cut. This means the relatively low interest rates should be around for a while.

Good for Debt, Bad for Savings

Lower interest rates are good for borrowing money since it means you will be paying less in interest. The bad news is that the Fed rate cuts don't directly translate into lower rates for consumers. These cuts can take many months before the effects are felt on your bottom line, but you can begin shopping for lower rates now. Once you can begin to benefit from the lower rates, you'll have more money in your pocket as less is being spent on interest payments.

While lower interest rates saves you money when borrowing, the opposite is true when you are saving money at the bank. As interest rates fall, the rate of return on your checking, savings and CD accounts will likely follow suit. If you enjoyed the comfortable savings rates during most of 2007, you're probably not very excited as many rates have now dropped below the rate of inflation. If you can, make sure you're getting the best rate possible and explore other banks to ensure you're getting as much interest on your savings as possible.

• How to Plan for Lower Interest Rates
• What Are Interest Rates?
• The Federal Reserve and Interest Rates