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credit & debt

Make the Most of Steady Interest Rates

The Fed is putting a pause on rate hikes. Here’s what borrowers and savers should do now.

After boosting short-term interest rates between late 2015 and late 2018, the Federal Reserve has signaled it likely won’t hike rates in 2019. That’s a relief for borrowers—especially those who have debt with a variable interest rate—but savers get shortchanged.

Most credit cards have a variable rate tied to an underlying index, such as the prime rate. When the Fed changes the federal funds rate, the index typically follows in tandem—so card rates should hold steady the rest of the year. If your credit card carries a balance, consider a card with an introductory 0% rate on balance transfers. With rate hikes on pause, card issuers will probably offer 0% windows longer than previously anticipated, says Matt Schulz, chief industry analyst for CompareCards.com. The Amex EveryDay card recently offered a 0% rate on balance transfers and purchases for 15 months (then 15.24% to 26.24%), with no balance-transfer fee as long as you request the transfer within 60 days of opening the account.

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A home-equity line of credit typically comes with a variable rate, too. Taking advantage of a HELOC could let you finance a home-improvement project or consolidate high-rate debt without much concern that the rate will increase soon. The average HELOC rate was recently 6.29%, according to Bankrate.com.

A strategy for savers. Even rates on savings accounts from internet banks (usually the most competitive) likely won’t move much the rest of the year, says Ken Tumin, founder of DepositAccounts.com. Since December, some internet banks have cut rates on CDs, especially those with five-year maturities, says Tumin. Still, he says, “it’s starting to make more sense to lock in to a CD, especially with the possibility that rates could start falling.” Hedge your bets by choosing a CD with a mild early-withdrawal penalty. Capital One 360 recently offered a 3.1% rate on a five-year CD, with a penalty of six months’ worth of interest for withdrawing the money early. Ally Bank’s five-year CD yields 3%, with a penalty of about five months’ interest for an early withdrawal.

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