Federal Reserve Pledges Low Interest Rates Through 2023: What It Means for You

by Maurie Backman | Updated July 25, 2021 - First published on March 18, 2021

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The Fed's latest announcement isn't all good news. Read on to see how your bank account might be affected.

The coronavirus pandemic has been raging for about a year now. And while the jobless rate isn't nearly as high as it was back in April of 2020 when it hit a record 14.7%, we're still a long way from returning to pre-pandemic levels. On March 17, the Federal Reserve announced that while it does expect the U.S. economy to grow in the near term, it also has no plans to raise interest rates through 2023. But what does that mean for consumers? Let's dig in.

Does the Federal Reserve set consumer interest rates?

Interest rates are a part of our everyday finances. The higher the interest rate on your savings account, for example, the more you get paid to keep your money in the bank. But contrary to what some people may believe, the Federal Reserve does not actually establish interest rates for consumer products. In other words, the Federal Reserve doesn't decide what interest rate you pay on your credit card balance or what rate your mortgage lender charges on a home loan.

What the Federal Reserve is in charge of is the federal funds rate, which is the rate banks charge each other to borrow on a short-term basis. That said, the decisions the Fed makes tend to influence consumer interest rates -- for better and for worse.

What should consumers expect in the near term?

The fact that the Fed plans to keep interest rates where they are for another couple of years could trickle down to consumers in a number of ways. First, credit card interest rates could stay low, which is good for people with credit card debt. Similarly, personal loan interest rates could stay low, making it more affordable for people to borrow money as needed.

Mortgage rates, meanwhile, may be a mixed bag. The Fed's recent announcement could help prevent a mortgage rate spike, though it's worth noting that rates for both new home purchases and refinances have climbed steadily in the course of the past month. It's unclear as to whether this news will cause mortgage rates to go down or merely slow their steady climb. But chances are good that mortgage borrowers will benefit in some way from the Fed's statement.

Now the one area where consumers get the short end of the stick is savings account interest rates -- and by extension, CD rates. Rates on savings products have been notably low for many months, and they're likely to stay that way in the near term. That means you're not going to get rich by keeping your money tucked away in the bank. But to be clear, that's also the safest place for your emergency fund, so it's still worth keeping some money in your savings account.

If you have extra savings outside of what you need for emergencies, you may want to look at investing in a brokerage account. Buying stocks carries some risk -- namely, you may lose money rather than gain money -- but seeing as how little savings accounts are paying these days, if you want to grow your non-emergency cash, investing is probably your best bet.

Remember, while the Federal Reserve doesn't set consumer interest rates, the decisions it makes could have a significant impact on your personal finances. The Federal Reserve Open Markets Committee usually meets about once every six weeks. So you may want to keep an ear out for its next announcement. You never know how it might affect you.

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