Consumers are understandably confused about rising interest rates. After another week of mixed signals on the economy, the Federal Reserve is almost certain to leave rates on hold at the conclusion of its two-day meeting next Wednesday. So while some borrowing costs are indeed easing—namely for 30-year fixed mortgages—others are rising, making it a bad time to be a borrower… or a saver. Concerns about an impending recession and heightened uncertainty over future trade policy are playing a role.
The national average rate for a 30-year, fixed-rate mortgage is down to 6.77%. This drop comes after a jump back up to 7.04% at the beginning of the year. This decline is creating much-needed relief for would-be homebuyers. According to new data from the Mortgage Bankers Association, consumers have become significantly more concerned with the prospect of an upcoming recession. This confusion around President Donald Trump’s tariff plans has upended their outlook and weighed down rates.
"The good news is that even though the Fed has taken its foot off the gas when it comes to rate cuts, mortgage rates have fallen," - Matt Schulz, chief credit analyst at LendingTree.
The average interest rate on a five-year new car loan has fallen back to 7.42%. That’s down from an all-time high of 7.53% back in January! This comes as welcome relief for anyone in the market for a new vehicle.
When it comes to student loans, the story is more complicated. Private student loans have seen even bigger drops in rates. These rates fluctuate widely and are tied to indices like the prime rate or Treasury bill. The average APR on private student loans has fallen to 20.09%. That’s a drop from 20.27% on January 1st.
Direct federal student loan interest rates will increase to 6.53% for the 2024-25 academic year. That’s up from 5.50% for the 2023-24 fiscal year. These rates are, in large part, a function of the May auction of the 10-year Treasury note.
"Consumers are stretched and stressed," - Greg McBride, chief financial analyst at Bankrate.com.
Credit card rates are even more directly linked to the Fed’s moves, since the majority of credit cards have variable rates. Revolving debt, which is mostly credit card debt, is up 8.2% YOY. Nonrevolving debt, including auto loans and student loans, is up as well, with a 3% increase year-over-year.
So even with all the volatility in borrowing rates, savings rates are continuing to stay put. That’s because high-yielding online savings accounts remain a great deal, with yields averaging 4.4% APY. These short-term rates amount to some of the highest returns in more than 15 years.
"While the Fed holds rates steady, 'savings rates really haven't changed all that much, that's the good news,' said Bankrate's McBride. 'Savings rates are still at attractive levels and the top yields are still well in excess of inflation.'" - Bankrate's McBride.
The Federal Reserve’s expected move to keep interest rates unchanged would be in line with a wait-and-see attitude during an unfolding economic picture. While some key sectors have recently experienced improvements in borrowing costs, others continue to deal with higher rates. This leads to a confusing and dangerous environment for consumers.
