What Low Interest Rates Mean for You

What Low Interest Rates Mean for You

September 10, 2020

Tagged As: Personal, Wealth Management

Recently, the Federal Reserve – the central bank of the United States – announced a change in its inflation policy that may have the effect of keeping interest rates low for an extended period of time. That could affect interest rates on things like credit cards, home mortgages, lending, savings accounts and certificates of deposit, and more. Here’s what you need to know.


How does the Federal Reserve affect the interest rates I receive?

As the bank that issues official U.S. currency, the Federal Reserve is responsible for setting the interest rate that banks use to lend to each other. This “fed funds rate” is also a benchmark upon which all other interest rates in the country are set. It has a large impact on both the U.S. economy as a whole – and the financial products people like you rely on every day.

Credit Cards

Many credit cards in the U.S. use a variable (or “floating”) interest rate which changes depending on the fed funds rate. If you carry a balance on your credit card, you’ll be charged an amount based on the current interest rate applied to your balance. In times when the fed funds rate is low, that means you could end up paying less interest on your balance from month to month than you would when the interest rate is higher.


The year so far has brought a series of crises to Eastern Iowa, and many individuals and small business owners have found themselves in need of funds, whether due to the derecho storm or COVID-19. Loans can be a lifeline in hard times like these. And when interest rates are low, you’ll pay less over the duration of the loan – which can also make loans a smart option for purchasing a car, completing a personal project, or undertaking business ventures.


Possibly the greatest you stand to gain from a low-interest-rate environment is through a mortgage. For many people, a house is the largest investment they’ll ever make. That investment is often paid for over 15 or 30 years (including interest). Securing a low interest rate on a mortgage, therefore, could end up saving you thousands over the long run. At Hills Bank, we offer an exclusive mortgage interest rate discount on in-house loans for customers who have their primary checking account with us– which will save you more on top of a lower rate.

High Yield Checking Accounts

Most checking accounts don’t earn a significant amount of interest. But some do. Called high yield or high interest checking accounts, they often can provide returns similar to a long-term certificate of deposit (CD). These accounts are also affected by the interest rate set by the Federal Reserve. When the Fed’s interest rate is low, these accounts might offer a lower interest rate, too. But if you can meet the requirements to earn the highest available rate, a high interest checking account could still be right for you.

Savings Accounts and Certificates of Deposit (CDs)

Like high yield checking accounts, savings accounts and certificates of deposit will also offer lower interest rates on your balance when the fed funds rate is kept low. But beyond the interest you gain from keeping your money in the bank, you also have the peace of mind in knowing your money is FDIC-insured to save for a rainy day. That’s why it’s still a good idea to have a savings account and/or a CD – even if you only receive a modest amount of interest. 

Current Interest Rates


Our bankers are happy to help with any questions you might have. Get in touch with a personal finance expert and open an account or loan through the HERE by Hills Bank app, or stop by any of our 19 locations.