Is the third time a charm for interest rates? The Federal Reserve has cut rates again this year, so your savings account may not make as much money for a while. Considering that most traditional savings account rates are abysmally low, you might not even notice. Here’s how it affected me already.
Interest rates fluctuate over time based on what the Fed does. When prices go down, it is less expensive for borrowers to take out loans or use their credit cards, but savings rates lessen. However, when interest rates go up, you’ll end up paying more in interest for the same types of credit, but you’ll earn more interest on your variable-rate assets.
My savings account annual percentage rate (APR) with Ally Bank went down immediately to 1.80% after the news broke of the rate change from the Fed. Again, it changed like it did in September. Earlier this year, the APR was 2.20%, so these decreases are very disappointing. Other banks’ APRs also decreased, such as Marcus by Goldman Sachs. However, there are banks and bank-adjacent companies with APRs that are holding steady.
The highest rate advertised is from Vio Bank with 2.27% APR. However, you only get six transfers per month with no ATM access, and there is a $100 minimum. The next highest rate was Simple, which is not a bank but is more like a broker because it has relationships with banks. Simple is offering 2.15% with no fees or minimums. However, that rate is only for balances over $10,000. Everyone else will receive a percentage of 2.02%. Bankrate has a list of the highest APRs with reviews and all the details of fees.
Previously, I researched my options for refinancing during the last rate drop, but the outcome was less than favorable. Now that they have dropped again, I may reconsider. Ally Home Loans and Navy Federal are both showing rates under 3.75% for a conventional loan. However, banks and credit unions have assumptions that they make when initially quoting that can quickly change once the paperwork is filled out.
That is what happened the last time. I have a 770 credit score and positive net worth, but I couldn’t get my desired rate without points or high closing fees. Ally home estimated over $7,000 in closing costs for a one-half point reduction. I explained to the representative that it didn’t make sense to pay that much when I could apply it to my current loan. I’d save in terms of interest and time.
While I’m still interested in refinancing, I don’t want to waste money. I don’t plan on paying off my current home loan because I only plan to stay in this home another year or two. At the previous rate, one to two years was the breakeven point. If I sold my property any sooner than that, then I would lose money on the refinance. Now that rates are lower, I can consider trying again. My breakeven point should be sooner rather than later.
However, it seems like banks would lose money with lower interest rates, and they would try to make up the revenue elsewhere. I have a feeling they will increase points or fees, so you have to pay more money either way. Hopefully, I’m wrong, and refinancing will be an affordable option.