How to check your finances when loan rates and savings rates pull in different directions
On the day news broke that the benchmark interest rate had been cut, twice as many people as usual crowded the bank’s service desks. In one line stood people asking when their loan rates would drop and others worried about how far their savings rates would fall.
A rate cut is welcome news for some and the start of a dilemma for others. The same headline means something different in every home because each household’s finances are structured differently.
If You Have a Variable-Rate Loan
Households with variable-rate borrowing see their interest burden ease within a few months. Experts advise using the savings to pay down a bit more principal rather than spending more, because rates can rise again.
When rates fall is the best time to cut your debt. You have to build up your strength the moment you get some breathing room.
A household financial counselor
Savings Accounts and CDs
Savings rates will soon follow downward. If a deposit is about to mature, it is worth looking at products that lock in today’s rate for a little longer. Above all, for an emergency fund, being able to withdraw it anytime matters more than the rate.
- Check each loan’s rate type and remaining term
- Put the interest savings toward principal first
- Reinvest maturing deposits in staggered terms
- Keep three months of living expenses aside as an emergency fund
We cannot set interest rates, but we can decide how to respond to them. A good start is to open this month’s budget and write down your loan and savings numbers again.
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