 |
Commentary: | |
| Top Tips |  Column archive |
|
What an interest rate cut means to you
Gerri Willis explains what another interest rate cut means to your wallet, and how you can benefit from it.
 |
| For more information on managing your largest investment, check out Gerri Willis' "Home Rich," now in bookstores. |
NEW YORK (CNNMoney.com) -- The Federal Reserve is expected to cut interest rates today. That would be the ninth consecutive rate cut this year. Here's what this means to your wallet.
1. Tame your expectations
If you're in the market for a loan today, the rate cut won't mean very much to you.
Of course when the Fed cuts the federal funds rate, that directly influences the prime rate.
The prime rate right now is 4.5%. And that prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. But even though interest rates could fall to one percent, it doesn't mean you'll be reaping big reward.
The good news is that the rate cut won't necessarily hurt savers either. Rates on CDs have been stable says Greg McBride of Bankrate.com. CDs are paying close to 4%.
2. Shop around
Mortgage rates have been all over the place. Right now the 30-year fixed-rate is at 6.28%. And historically, these rates are close to historic lows. So, the key is that you need to shop around.
Check out small banks and credit unions if you are rejected for a loan from a bigger bank. That's because smaller, more local banks don't have the same kinds of problems on their balance sheets that bigger banks have.
Of course no matter where you go, you will need a credit score of 720, and more realistically, a score of 750-780 to qualify for the best rates. You'll need verifiable income and a down payment that's at least 10-20%.
When it comes to auto loans, the terms you'll get won't vary very widely from lender to lender, so make sure you find out what the manufacturer is offering. If you have the cash and the credit score, there are some great deals out there right now.
3. Watch the fine print
If you have a variable rate credit card, you probably won't see much of a benefit from a rate cut.
But you should be on the lookout for credit card companies switching you from a variable rate card to a fixed rate credit card. If this happens, you usually get 15 days of written notice and you may have the opportunity to opt out of this says Curtis Arnold of Cardratings.com.
Plus, a few credit card issuers have instituted what's known as a credit card floor - it's the interest rate your card can't go past - despite how many fed rate cuts there are.
To figure out if you have a floor on your credit card, look for the words that indicate your rate can never be lower than X%. Most credit card floors are between 10-12%.
And if you have a variable rate federal loan or a private student, chances are this rate cut won't affect you very much either. In fact, Sallie Mae raised its interest rate on some private loans by 2%. 
