What have the 2001 Fed rate cuts meant to the average American family? Just over $83,000.

That’s what a typical family with a typical mortgage, credit card balance, car loan, home equity loan and CD savings would have saved had they used today’s interest rates for their loans and savings, instead of those in effect in May 2000, when the Fed’s Open Market Committee last raised rates.

Alan Greenspan and his fellow members of the rate-setting Open Market Committee met 11 times in 2001, and 11 times they cut the federal funds rate.

The result has been lower rates on all sorts of products. For consumers who borrow, it has meant they’ve been able to get lower monthly rates. For consumers who save, unfortunately, it has meant lower returns.

The rate cut cycle is over. Today, at the Federal Reserve’s Board FOMC meeting, once again the rates held firm — no cuts, no bumps up.

To illustrate how the interest-rate moves affect monthly expenses and income for the average American family, we created an imaginary couple, Joe and Jill Bankrate, and gave them some typical debts and savings:

  • A $150,000, 30-year fixed-rate mortgage.
  • A $34,318 home equity loan, payable over 15 years.
  • A credit card balance of $5,610, which they intend to pay off over three years.
  • A $20,000, 48-month new car loan.
  • A $5,000, one-year CD.

We’ve projected their expenses based on national averages, using the latest interest rate information from Bankrate.com’s weekly national rate surveys.

We compared two sets of rates: The rates from May 2000, which is when the Fed stopped its yearlong policy of raising rates to stem inflation, and the Bankrate information from June 20, 2002.

The Bankrates’ mortgage: $150,000
Mortgages, which move in anticipation of rate changes by the Federal Reserve Board, are the biggest part of most families’ finances. So this is where the biggest dollar change has occurred: Rates were 8.65 percent in May, 2000; they were 6.60 percent two years later on June 20.

If our Bankrate couple had waited to finance their mortgage or had refinanced their mortgage in the last couple of weeks, their savings would have been significant.

Total mortgage savings: $211.36 per month, or $76,091.57 over the life of the loan.

Click here for the latest mortgage rates from Bankrate.

The Bankrates’ home equity loan: $34,318
Rates have fallen from 10.07 percent in May, 2000, to 8.25 percent on June 20.

Total home equity loan savings: $37.25 per month, or $6,646 over the life of the loan.

The savings would have been even greater had the Bankrates taken out a home equity line of credit ( see chart below). But most experts believe that rates will begin to rise over the next several months, making locking-in the fixed-rate home equity loan a wiser choice.

Click here for the latest home equity rates from Bankrate.

The Bankrates’ auto loan: $20,000
Rates have fallen from 9.34 percent in May, 2000, to 8.35 percent on June 20.

Total savings on their car loan would have been $9.39 per month, or $450.49 over the life of the loan.

Click here for the latest auto loan rates from Bankrate.

The Bankrates’ credit card: $5,610
Joe and Jill’s standard variable rate card dropped a full 3 percent, since the rate cutting began. In May, 2000, the rate was 16.85 percent, and by June 20, it was readjusted down to 13.85 percent. Their monthly savings is $8.26 or $297.55 over three years.

A credit card issuer’s rate adjustment generally moves much slower than the Fed changes, since most re-price interest rates after a change in the prime rate. Depending on the policy of your financial institution, it could take several weeks or even months to see a change in rates. Credit cards that have interest-rate “floors” may have already hit their lowest rates.

Click here to find the best credit card rates from Bankrate.com.

The Bankrates’ nest egg: $5,000
Unfortunately, the rate cuts by the Federal Reserve Board have had a dramatically adverse affect on our couple’s savings account. And, the change in the rate was fairly swift.

In May, 2000, their one-year $5,000 certificate of deposit was earning $277 at a yield of 5.54 percent. Today, that same $5,000 is only earning $111 — a difference of $166.

Click here for the latest savings rates locally and nationally from Bankrate.

The 11 rate cuts could have netted the Bankrates a total savings of $83,319.61.

……………………………………..


Difference the Fed makes in what the Bankrates pay for loans
 
May

2000

% rate

May

2000 payment

June

2002

% rate

June

2002 payment

Difference

Mortgage
($150,000, 30 years, fixed rate)

8.65%
$1,169.35
6.60%
$957.99
$211.36 per month
$76,091.57 over the life of the loan
Home equity line of credit
($30,852, paying interest only for 10 years)
9.21%
$237
5.29%
$136
$101 per month
$12,094 over the life of the loan
Home equity loan
($34,318, 15 years)
10.07%
$370.25
8.25%
$333
$37.25 per month
$6,646 over the life of the loan
Auto loan
($20,000, 48-month new car loan)
9.34%
$500.94
8.35%
$491.55
$9.39 per month
$450.49 over the life of the loan
Credit cards
($5,610 balance, goal of paying it off in three years)
16.85%
$199.59
13.85%
$191.33
$8.26 per month
$297.55 over three years
 
Difference the Fed makes in what the Bankrates earn
 
May

2000

% rate

Annual interest

earned


June 2002

% rate


Annual interest earned
Difference
Certificate of deposit
(1-year CD, $5,000)
5.54%
$277
2.22%
$111
-$166
Sources: Bankrate.com weekly surveys, Consumer Bankers Association
— Updated: June 26, 2002