Here are some money moves to make while the Fed keeps rates near zero

The Federal Reserve announced on Wednesday that it would keep its key interest rate near zero despite signs that the economic recovery is in full swing.

But it is clear that prices will not stay at rock bottom forever. Recent data showing higher consumer prices and lower unemployment will pave the way for the unwinding of last year’s bond purchases and interest rates close to zero.

“With 7.8 million jobs below pre-pandemic levels and 9.3 million workers unemployed, the Fed is giving air raid protection to maintain the incentive and hold back any outside discussion about curbing their bond purchases,” said Greg McBride, chief Financial Analyst at Bankrate. com.

“Even without speaking about it publicly, it is sure to be a hot topic of discussion behind closed doors.”

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Although the federal funds rate banks charge each other for short-term borrowing is not the interest consumers pay, the Fed’s moves are still affecting the loan and savings rates they see on a daily basis.

The Fed’s historically low lending rates make it easier to borrow – while also making it less desirable to hoard cash.

So consumers can benefit from these guidelines as long as they are in effect.

Tips for Borrowers

For starters, soaring home prices have resulted in record levels of home equity, offering homeowners an unprecedented opportunity to refinance or pull money out of their homes at record low rates.

Currently, the average 30-year fixed-rate mortgage, generally pegged to US Treasury bond yields, is 3.13%, even lower than it has been in recent weeks, according to Bankrate.

However, once the Fed begins to slow the pace of bond purchases, long-term mortgage rates will inevitably rise as they will also be affected by the economy and inflation.

“Mortgage rates have moved back from earlier spring levels, which is now a good time to refinance for those who haven’t gotten around to it,” said McBride.

“You can still set rates well below 3% and that can create valuable headroom in the household budget at a time when many other costs are rising,” he added.

Alternatively, you can use a home equity loan or cash-out refinance to pay off other debts, advised Tendayi Kapfidze, chief economist at LendingTree, an online loan marketplace.

“You can cut your overall debt costs significantly,” said Kapfidze.

For those with credit card debt but no home equity, “consider moving to a lower-cost loan such as using a personal loan to consolidate and pay off high-yield credit cards,” advised Kapfidze.

The average interest rate on a personal loan is currently around 10.49%, “but those with good credit can find interest rates in the mid-single digits,” McBride said. Compare that to the variable credit card rates, which, according to Bankrate, averages 16%.

Alternatively, you can look around for an interest-free credit transfer offer.

“Banks are eager to lend again, and we’ve seen a massive escalation in credit card rewards offerings over the past few weeks,” said Matt Schulz, LendingTree’s chief credit analyst.

“That makes it a really good time to look for a new card,” said Schulz.

When it comes to college debt, student borrowers have already been given a hiatus thanks to the CARES bill that has put federal student loan repayments on hold until September.

Still, this is a great time to keep track of payments, McBride said. “Without interest, every dollar is used to pay off the balance.”

Advice for savers

Those who keep cash will find it harder to take advantage of low interest rates.

While the Fed has no direct influence on deposit rates, they tend to correlate with changes in the federal target rate, which means that savers make next to nothing on their money.

According to the Federal Deposit Insurance Corp. the average savings rate at some of the largest retail banks is only 0.06% or even less.

Even a payment slip doesn’t offer a decent return. CD interest rates are currently below 0.5% on average for one year, which means that savers tie up funds below the inflation rate and get almost nothing back.

Right now, online-only banks like Marcus from Goldman Sachs and Ally Bank are better choices, according to Ken Tumin, founder of DepositAccounts.com, although these banks have steadily reduced their deposit rates too.

Stocks and mutual funds will beat inflation in the long run, but that will require you to take more risks and have less cash.

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