NCPA - National Center for Policy Analysis

Fed Interest Rate Cuts Favor Borrowers

May 16, 2001

Since January, the Federal Reserve has knocked 2.5 percentage points off the benchmark federal funds rate. While this may be good news for the economy overall, it has hurt savers who keep their money in bank certificates of deposit or other conservative financial instruments.

Last summer, CD rates were at their highest in five years, notes Greg McBride, a financial analyst at Today, they are at their lowest in seven years.

  • Since Jan. 3, the national average on 1-year CDs has declined from 5.21 percent to 3.84 percent.
  • Five-year rates have gone from 5.45 percent to 4.55 percent.

Meanwhile, loans have gotten cheaper for those more interested in spending than saving.

  • The average credit card rate has dropped from 17 percent to 15.73 percent.
  • The average 48-month auto loan has declined from 9.64 percent to 9.04 percent.
  • But the average 30-year fixed-rate mortgage has inched up from 7.07 percent to 7.10 percent.

Money-market fund rates started the year at 6.09 percent. They have declined to 4.23 percent now. And Peter Crane, of iMoneyNet, predicts they will fall 3.65 percent following the latest Fed cut.

Source: Christine Dugas, "Rate Cuts Pinch Conservative Savers," USA Today, May 16, 2001.

For text


Browse more articles on Economic Issues