The rate cut's winners and losers

Winner: Auto loans

This year has already seen two interest-rate cuts from the central bank's Federal Open Market Committee, and auto loan interest rates have tumbled.

On Jan. 7, the standard five-year new-car loan interest rate was 7.61%. Now, two months later, the rate on the same loan in Bankrate's weekly rate survey stood at 7.22%. Auto loan shoppers will see interest rates continue to decrease over the next few weeks.

"Auto loan interest rates have been moving lower and another cut will keep that trend intact, but it's not going to translate into a windfall of savings for buyers," says Greg McBride, senior financial analyst for Bankrate.com.

Interest rates on auto loans stayed relatively stable throughout the cuts in the second half on 2007, but this year's cuts prompted banks to lower the price for borrowers. "Some of that is a lagged effect from the rate cuts that were put into play in the latter part of 2007," says McBride.

But, he says, the two big cuts in January really did a lot to jump-start the movement seen recently in rates.

The amount that rates have fallen came as a surprise to some people, such as Bill Vogeney, senior vice president and chief lending officer with Ent Federal Credit Union in Colorado.

"I was really anticipating rates not dropping as much as they have and we've looked at competitors rates and they've dropped pretty significantly," he says.

"I think that there's still a desire for banks and auto finance companies to make auto loans and they are all trying to get the strongest borrowers. So I think that if you have good credit, rates will be very attractive. And I think they'll continue to fall," says Vogeney.

Take action: Shop around when looking for an auto loan. Don't rely on the dealership for financing but don't count them out either. Call a number of lenders and find the best rate you qualify for, then call the dealership and see if they want to beat it.

Loser: Certificate of deposit buyer

"The Federal Reserve has clearly signaled that they're going to throw savers under the bus," says William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Mass.

CD buyers have felt the pain of falling rates for quite some time now; unfortunately, it doesn't appear that this will end anytime soon. This 0.75-point cut by the Fed in the federal funds rate will continue to aggravate the wound.

Throughout 2007 we saw yields drop slowly, perhaps a basis point or two a week or every couple of weeks (a basis point is a hundredth of a percentage point) with the pace quickening toward the end of the year. More recently the cuts have steepened; double digit drops haven't been unusual in the course of a week.

If this latest cut prompts further double-digit drops in CD yields, it will surely prompt savers to look for alternatives.

Yields aren't keeping up with inflation. The one-year CD has been the weakest link; since Jan. 23 its yield has trailed the six-month yield.

Money market accounts haven't fared any better. The average yield is 0.73%, down from its recent high of 0.94% in January 2007.

Take action: Consider yourself lucky if you don't have to make a decision at this time about what to do with your fixed income. If you bought five-year CDs a couple years ago when rates were much healthier, you're sitting pretty. But if your CDs have matured and you need to reinvest, well, you can't stick the cash in a box -- even these yields are better than that.

If you have a CD ladder with a rung that needs to be replaced now, stick to the plan.

Treasury securities are always one of the most prominent options in the fixed-income market, but they may be portfolio poison right now.

"When I look at the Treasury yield curve my gut tells me that nothing associated with Treasurys is safe at this point because the pendulum has swung to complete fear," says Larkin.

"The two-year is yielding 1.54%. That is ridiculously expensive and illogical if you look at the Personal Consumption Expenditures and the Consumer Price Index. I'm telling customers that the safest thing right now is a high-yielding money market from a reputable company like a Schwab or Fidelity -- one of the bigger companies."

Continued: Good news for credit card debtors

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