Jan 22, 2008

The Fed rate cut doesn't help me personally (actually, it hurts)

The Federal Reserve reduced its interest rate to 3.5% this morning. There was once a time when I loved seeing the Fed cut its rates. The last time the Fed slashed rates like this (about 6 years ago, I think it was), the monthly payment on my private student loans dropped from $400 to $270. I was just learning about personal finance at the time and I knew just enough to keep paying the $400 per month so I would pay off my loans faster.

Since then, I've paid off my private loans. And now I have no adjustable-rate debts. I have a 30-year fixed rate mortgage. I have a consolidated student loan. And that's it. Which means the Fed's rate cut does nothing to help my personal financial situation.

In fact, not only does it not help, it hurts. Because the interest rate that I earn at the bank will probably now drop and I won't earn as much interest on my liquid savings as I would have before the rate cut.

The only personal silver lining that I can find is the hope that rates will keep dropping so that I'll be able to re-finance my mortgage for a rate that's even lower than my already low rate. Oh, and that when we buy our new car later this year, we'll be able to get a really sweet financing deal (like 0%) so we can redirect the money we would have used to pay for the car toward my student loan.

In the meantime, I know it's probably futile, but I really hope that the people who could truly benefit from this rate cut take advantage of it and pay off their debts. Our country's economy would only improve if everyone were in a personally strong and stable financial position.


Anonymous said...

There is no such thing as a sweet deal on a loan from a car dealer. Anything they give you, they take away somewhere else. Any promotional interest rate from the manufacturer probably has an alternate that's a better deal.

I have had this conversation with a car dealer (about a $15,000 car):

Me: Is the price of the car still the same if I don't take the 0% financing.

Dealer: Oh yes, the price is still the same.

Me: Is there a rebate I can get if I turn down the 0% financing?

Dealer: Yes, there's a $1500 rebate.

The price of the car went down by 10% in the first 30 seconds after the salesman walked up to me, just for turning down the 0% financing.

Get your financing aranged before you go to the dealer. Using the dealer's financing gives them another shell to use in their shell game.

Chief Family Officer said...

@W - Thanks for your concern. You're absolutely right, if there's a cash rebate on the car, we'll definitely take that over the 0% financing. But the last time we bought one, there was no rebate. And the 1.9% financing we got was a much better rate than what I was paying on my private and Stafford student loans. If we get a super low rate like that (assuming there's no rebate, of course), we'll take the low rate so we can pay off my student loan faster - it'll save us more money in the long run. And both my student loan and the car loan would be paid off within two years anyway. :D