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How Fed rate moves affect savings, loans, and mortgages
Higher federal funds rates tend to raise borrowing costs on products like credit cards and auto loans, while also boosting returns on some savings accounts.
Yahoo Finance explains that the Federal Reserve’s federal funds rate decisions are aimed at stable prices and maximum employment, with rate hikes often used to cool high inflation and rate cuts used to support growth.
When the Fed raises the federal funds rate, financial institutions typically increase interest rates on loans such as credit cards, auto loans, and personal loans, and can have a less direct effect on mortgages; the outlet also notes that deposit accounts may pay more interest as banks adjust to expand lending capacity.
Conversely, if the Fed lowers the federal funds rate to encourage borrowing and spending, loan interest rates generally fall, but deposit accounts pay less interest, which can limit savers’ ability to grow balances.
The article also highlights that the impact depends on a person’s situation, including whether they hold a lot of cash in savings, and it cautions there is no single answer to whether high or low rates are better overall.