Over the past year we have seen rates on home loans, certificate of deposits, savings accounts and even credit cards go down further as the economy gets worse. The U.S. Government has been trying to unfreeze the credit markets by lowering rates. The U.S Treasury Department has been dolling out billions of dollars to banks large and small since the Troubled Asset Relief Program (TARP) started in the fourth quarter of 2008.



Because of the TARP program banks have found another way of funding their reserves instead of competing with each other for depositors funds by raising interest rates or by offering promo certificate of deposits and savings accounts. In late 2008, several banks were offering 5 year CD rates over 5.00%. Most banks now offer 5 year CD rates under 4.00%, some as low as 2.5%.

The Federal Reserve Bank has also been active driving down interest rates to help the economy. This past week, the Federal Open Market Committee (FMOC) released a statement saying they decided to keep the Fed Funds rate at a target range of 0% to .25% for some time.

Here is part of the FMOC statement.

"The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time"

The Federal Reserve Bank also feels inflation is not an issue anymore since commodity prices have been coming down.

Here is the part of the FMOC statement on inflation:

"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee's policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant"

The Fed has also been printing tons of dollars and buying large quantities of mortgage backed securities from banks to drive interest rates on mortgage down to generate home sales and put a floor on housing prices. In the 4th quarter of 2008 when the Federal Reserve Bank announced they would purchase $500 billion in mortgage-backed securities rates on home loans immediately dropped 1.00%.

Now is a better time then ever to refinance a home purchase or buy your first home. Rates are at historic lows at around 5.00%. The government is also entertaining ideas on giving home buyers a tax credit.

Rates on deposits and home loans will stay low for awhile. Since the government is printing tons of dollars and all this new money is being pumped into the economy interest rates will rise in the future. The government also has to be careful not to over stimulate the economy and fan inflation.