September 6, 2024
Understanding Federal Rate Changes and What They Mean for You
Navigating Federal Rate Changes with Journey Credit Union
WHAT WE’LL COVER:
- The federal funds rate impacts the interest rates credit unions and banks offer on deposit accounts.
- Recent updates from the Federal Open Market Committee (FOMC) and future expectations.
- How changes in the federal funds rate can affect your savings and loans.
When considering a savings account, interest rates are likely top of mind. After all, the higher the rate, the more you stand to earn from your deposits. But have you ever wondered how these rates are determined?
The federal funds rate, set by the Federal Reserve (the Fed), plays a key role in determining interest rates across various financial products. The Fed’s decisions on this rate can influence the rates that financial institutions offer on savings accounts, certificates of deposit (CDs), and loans.
WHAT DOES THE FED DO?
The Federal Reserve is the central bank of the United States, responsible for maintaining a stable economy. It does this by implementing monetary policies designed to promote maximum employment and stable prices. Essentially, the Fed ensures the economy doesn’t overheat (high inflation and excessive growth) or freeze up (not enough growth).
One of the most important tools the Fed uses is the federal funds rate.
WHAT IS THE FEDERAL FUNDS RATE?
In essence, the federal funds rate is the interest rate at which financial institutions lend money to each other overnight. This rate, set by the Federal Open Market Committee (FOMC), is a crucial tool used by the Fed to influence the economy. The FOMC meets several times a year to adjust this rate as needed.
Since July 2023, the federal funds rate has been set at a range of 5.25-5.5%. The FOMC has indicated that rate cuts may be on the horizon, with potential adjustments expected in the coming months, possibly as soon as the end of September.
HOW DOES THIS AFFECT YOUR SAVINGS?
The federal funds rate serves as a benchmark for financial institutions, influencing the interest rates they offer on deposit and loan accounts. While banks and credit unions aren’t required to match the Fed’s rate exactly, their interest rates often move in response to Fed rate changes.
- When the Fed raises rates: Financial Institutions may increase the rates on savings accounts and CDs, potentially boosting your earnings.
- When the Fed lowers rates: Financial Institutions typically lower their rates as well, which could reduce your interest earnings.
For deposit accounts with variable rates, such as savings and money market accounts, you might see changes directly tied to the Fed’s rate adjustments. On the other hand, if you hold a fixed-rate CD, your rate remains unchanged for the term of the CD, even if the Fed lowers its rate.
tHE BRIGHT SIDE OF FALLING RATES: lOWER LOAN RATES
There’s another important aspect to rate changes. While lower savings rates may seem discouraging, they also signal a drop in loan rates. Lower borrowing costs can make this an ideal time for financing a major purchase, whether that’s buying a home or financing a car. So, while you might see less growth in your savings account, you could benefit from more affordable loan options.
HOW JOURNEY CREDIT UNION APPROACHES RATE CHANGES:
LOOKING AHEAD:
As the Fed continues to monitor inflation and the broader economy, future rate adjustments are possible. While these shifts may affect savings and loan rates, it’s important to remember that we’re here to support you every step of the way. Whether you’re saving for the future or planning a major purchase, Journey Credit Union is ready to guide you through the changing financial landscape.
For more information about our current rates or to explore your options, feel free to reach out to us anytime or check our Deposit Rate or Loan Rate pages on our website.
