Borrowers get break; savers suffer

By Jim Wasserman
jwasserman@sacbee.com

Published: Wednesday, Dec. 17, 2008

What does the Fed rate cut mean to you with a mortgage, car loan and credit cards?

You could be a winner if you have a home equity line of credit. But if you’ve socked away money in a savings account, you could be a loser.

Generally, though, it takes a while for the average person to see any effects at all. That’s because even though cuts in the federal funds rate eventually tug most consumer interest rates downward, they’re not directly linked.

And some experts believe these newest tugs may be limited, as lenders struggle with bad loans.

“What’s driving consumer loan rates right now is loan loss rates. They’re at all-time highs right now, and that constrains how much lenders can reduce their rate,” said Henry Wirz, president and chief executive officer of Sacramento-based SAFE Credit Union.

Typically, the prime rate is first to drop following a Fed rate cut. The prime, which banks charge their favored customers, is expected to fall to 3.0 to 3.25 percent from 4 percent. That’s down from 8.25 percent slightly more than a year ago.

Homeowners with equity lines of credit, which are linked to the prime rate, could score again when that happens. They’ve benefited throughout the year by the long series of rate cuts.

“A year ago, payments on a $50,000 line of credit would have been $302 a month. Today, it would be $166″…

Tuesday’s losers number in the millions.

They’re known as savers.

“It means that rates will be lower and will probably continue to be lower until the economy recovers” …

JimG

has been writing computer programs since 1970, and is still debugging them. The first modem he used was as big as a washing machine but not nearly as useful.