As bond yields carve out unprecedented lows, homeowners, buyers, and student loan borrowers may reap the rewards.
“That’s the big one,” he said.
Student Loan Planner.’ data-reactid=”41″>If the 10-year remains in free-fall until May, student loan borrowers may get a break. That’s because rates for federal student loans — including graduate and parent loans — are set in May at the last auction for 10-year Treasuries, said Travis Hornsby, a chartered financial analyst and founder of Student Loan Planner.
For students borrowing for the 2020-21 school year, they could get significant savings in interest if rates stay at these levels until the auction.
Undergraduates may get loans at 2.7% versus 4.53% now. Grad school students may see a 4.3% rate instead of the current 6.08%; and parents and grad students could get PLUS loans at 5.3% compared with 7.08% now, Hornsby said.
Read more: Certificates of Deposit (CDs): Everything you need to know‘ data-reactid=”61″>Read more: Certificates of Deposit (CDs): Everything you need to know
Tumin said he found a five-year CD at a credit union that pays 2.75% and one at an online bank that pays 2.5%.
“So right now, there’s a big advantage to go with a CD over a Treasury note,” he said.
Interest rates on shorter-term debt such as credit cards, home equity lines of credit, and personal loans are often tied to the prime rate. Returns on savings accounts and other deposit accounts also follow that rate, which tracks the federal funds rate set by the Federal Reserve.
The central bank last week cut that benchmark rate by a half-percent to help stem the massive sell-off in stocks due to the coronavirus worries.
But the reduction in the fed funds rate and the decline in the 10-year Treasury yield are still related, said Christopher Manderfield, executive vice president and head of product management at KeyBank.
“If you think more broadly speaking, as the Fed cuts to stimulate economic activity, you see a flight to safe havens, including the 10-year,” Manderfield said. “That won’t be disconnected from the fed funds rate.”
Given the turmoil so far this week in the stock, bond, and oil markets, the Fed may be forced again to slash rates to allay investors, or it may wait until next week when it formally meets on rates. Investors are expecting another quarter- to half-percent cut, which will provide more chances for the everyday Joe to save money.
“Be proactive. There’s going to be a real opportunity to refinance debt at a much lower rate than just six months ago,” Manderfield said. “That’ll put cash back in consumers’ pockets.”
Read more personal finance information, news, and tips on Cashay‘ data-reactid=”87″>Read more personal finance information, news, and tips on Cashay