MADISON (WKOW)--The Federal Reserve is keeping a key interest rate, the federal funds rate, at a record low of between zero and a quarter of a percent. So, why is the interest rate on your credit card ten times that, or more?
"We're actually paying much higher interest rates than they have in the past because, basically, there's been a breakdown in the credit markets and people don't know who to trust. And so almost all of us are paying a premium for that lack of trust in the economy," says University of Wisconsin financial specialist Michael Collins.
He also says all of those high-risk mortgages that collapsed also brought the roof down on the rest of the credit industry. And, as unemployment has gone up, so have loan defaults. The ripple-effect is unprecedented.
"Credit markets in general have been very strange. Historically, we haven't seen anything like this in quite some time. We've got a huge spread between the Fed rate and mortgages and other forms of credit debt."
True, banks have loosened-up some with the financial bailout money; mortgage rates are at historic lows, car loans are being offered at zero percent interest. The catch is, the standards to get credit at those rates are much higher than they used to be; and many people don't qualify.
"Interest rates are important to watch, just don't be fooled into thinking that when the fed sets a target rate of zero, that you don't have to pay any interest. You certainly do."
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