It was unthinkable even few months ago. U.S. is heading in the direction of Japan in terms of interest rates. Whether it’s necessary to reduce the interest rate to zero is debatable. But, the fact is interest rate is almost zero in U.S. today.

How it would affect you? There is good news and bad news depending on your specific situation. If you have mortgage on your house, it’s time to refinance. When the Fed reduces key interest rate, mortgage rate doesn’t really automatically fall down. Still, there is a high chance that mortgage rate would fall down by at least 0.75% in the near future. Refinance your house, it will save you lot of money.

If you owe any credit card debt or any other kind of debt, it’s time to refinance that as well. Talk to your lenders to reduce the interest rate on your debt. If your lender doesn’t agree to reduce the interest rate, find another lender that is willing to offer lower rate for you.

If you had parked your money in variable rate CDs, you will receive less interest. If you have invested in fixed rate CDs for a specific time frame like 6 months, you will be ok until the CD matures. When the CD matures, it will be reissued for the prevailing market rate at that time. If you have CDs maturing in the next few weeks, watch it out. If you don’t do anything, those CDs will be automatically reissued by the banks for the current lower interest rate.

We are entering a period of deflation. In inflationary period, the prices will increase. In case of deflation, prices will decrease. Decreasing price is good for the consumers. But, deflation is also an indication of serious pain in the economy. We can’t really control what the policymakers in Washington do. However, we can control and tailor our investments based on changes in economic environment.

Related Link: Fed cuts interest rates to virtually zero