How the Federal Funds Rate Affects Your Wallet

Published on: Mar 18, 2021fb-roundtwitter-roundemail-round

Federal Reserve chair Jerome Powell is the face of a lot of gov money moves that affect you. Like changing the federal funds rate – an important percentage that influences everything from inflation to what you pay to borrow money.

Increasing rates means the Fed thinks the economy’s doing well enough to handle higher borrowing costs. When things don’t look so hot, the Fed can lower rates to encourage people to borrow, spend, and invest...which can boost the economy. Since COVID-19 has some serious economic side effects, the Fed lowered rates to essentially zero in March 2020. And Powell and co. say they'll likely keep rates low until at least 2023.

Here’s what that could mean for your wallet.

Is ‘become a homeowner’ on your to-do list?
  • Buying when interest rates are low can make that dream less expensive. The fed funds rate isn’t directly tied to mortgages but can influence them.

  • Right now, mortgage rates are near historic lows. Compare rates from multiple lenders.

  • FYI, lenders have gotten pickier about who they do business with to protect against people defaulting on their loans. Making today a good day to work on your credit score.

Do you already own a home?
  • Refinancing to a lower interest rate could get you a cheaper mortgage payment.

  • Swapping out your old home loan for a new one may mean paying closing costs again. Do some HW to make sure you’ll save more than you spend.

Are you working on paying off credit card debt?
  • When the federal funds rate goes down, the interest on variable-rate debt (like a lot of credit cards) can, too.

  • That makes it less expensive – and easier – to pay off your balance.

  • If you can afford it, paying more than the monthly minimums can help you say ‘bye’ to your balance faster.

Do you like making money on your money?
  • Not-so-great news: when rates are low, banks may pay you less to keep money in savings.

  • If you’re shopping for a new savings account, look at online banks. They usually pay a little more than old-school options.

  • If you don’t need your money for a while, investing gives it a chance to grow faster.


Low interest rates can be good for the economy. They tend to make savers sad, but make it easier to pay off debt.

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Skimm'd by: Ivana Pino, Elizabeth Smith, and Elyse Steinhaus