As has been well documented just about everywhere, the Fed cut the funds rates last month to 4.75%. Opinion is mixed as to whether or not another rate cut is in our future, but they’re certainly not going up anytime soon. The Fed issued this half-point cut largely to quell fears within the credit markets and to alleviate some of the problems that the cheap money of the last few years has offered…i.e. see the sub-prime lending fiasco, et al.

So now, of course, we’re seeing interest rates fall in other areas as well. Unfortunately for home owners/buyers, a reduction in the Fed fund rate does not necessarily translate into reduced mortgage rates. There are certainly some rates that are tied to the Fed fund such as home equity lines of credit, adjustable car loans, business loans and more, but others, such as a fixed-rate first mortgage can go either up or down since they are determined by many different factors…one of which is inflation that just happens to usually go up when the Fed cuts rates.

One of the areas that does generally follow the Fed fund rate is with interest rates on high-yield savings accounts such as ING Direct and Emigrant Direct. Now, there isn’t a perfect correlation here, but generally these rates stick close to each other, and we’re seeing that now.

ING Direct dropped their interest rates to 4.30% a couple of weeks ago. Emigrant Direct held out a bit longer but finally succumbed recently and has dropped their rate to 4.75%. This drop was widely anticipated and one reason I suggested locking into some rates now in as you recession proof your portfolio. You can still get a rate over 5.00% if you shop around a little on a site like bankrate.com, but most of the biggies have all gone under that mark.

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