Local News

Interest Rate Drop Could Help You Buy More With Less

Posted October 15, 1998

— If you've been thinking about buying a new car, or refinancing your home, now may be the time to act. The Federal Reserve's surprise decision Thursday to lower interest rates on short-term loans could saveyoumoney on big-ticket items.

The Fed cut short-term interest rates to try and offset the impact of financial trouble overseas. But you don't have to travel very far to reap the benefits of the rate cut.

The immediate impact of the Fed's move was a rally on Wall Street. Wall Street reacted favorably to the Fed's surprise move because the drop in short-term interest rates means banks will pay less to borrow money. In turn, banks should charge less to loan money.

On Main Street, you're likely to see more houses selling because of lower interest rates on mortgages. NC State economist Dr. Doug Pearce says homebuyers will likely reap the benefits.

"When the interest rate on short-term loans comes down, generally, it percolates such that long-term interest rates come down." Pearce says the drop means mortgage rates start to come down too.

But if you like to pay with plastic, the cost of doing business probably will not come down. The Fed's move will not do much for credit card interest rates.

Interest rates on car loans tend to follow mortgage rates, so that could be good news for car buyers.

But interest rates on savings accounts, and money market accounts, will probably take a dip. Reporter: Betsy Sykes


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