The Bank Rates They Are A-Changin’

The Fed has walloped the United States with massive rates cuts of 125 points in a 10-day span on the realization that the U.S. economy is in a recession. The Fed noted the slowdown in the housing market and labor market as contributing to the economic malaise. The prime rate, which banks use as their target lending rate, is now set at 6.00% and rates on home equity loans, credit cards, and variable-rate mortgages will benefit consumers with lower monthly benefits.

Banks have lowered their deposit rates across the board from 30-days to 10-years with 5.00% rates on CDs or money markets now a memory. A notable to the rate-lowering mania is OneUnited Bank which has held their savings rate at 5.30% since May 2007 without a single rate cut. Customers of OneUnited Bank say thank you! The other way to find over 5.00% on a deposit account is through the intro offers from EverBank on checking or money markets or the Reward Checking Bank Accounts which are still paying as high as 6.25% for customers willing to meet the monthly requirements.

Economists are looking at 2.00% as the most likely floor for the Fed Funds rate which would mean that the 4.50% rates that are still available on bank depost accounts may turn into 3.50% rates by summer. It is our best guess that the leading online banks will keep their rates specials over 4.00% to generate enough consumer interest, despite the level of the Fed Funds rate. This will not be the case for local bank rates which will fall in accordance with Fed policy. 2008 may turn out to be the year that we see the widest gap between local bank rates and online bank rates.

Borrowers are again seeing mortgages rates below 6.00%, but this time the lending standard shave increased and only borrowers with FICO score of over 650 will see the best rates. Mortgages rates can move quickly based on economic reports so consumers holding out for the absolute lowest rate in this cycle may be playing a dangerous game.