I fielded a lot of phone calls yesterday from my clients about the Fed lowering the Fed Funds Rate and how it impacts them personally.  I love days like those -- it shows me that my clients are paying attention to the financial world and how it impacts them.

Education is the benchmark of my practice and I really enjoy talking to everyone, helping them relate the news to their lives.

See, in all of the talk about the Fed Funds Rate, specific numbers tend to get left out of the article in the newspapers and from the graphics on the TV.  That's why I built the graph above.

The Fed Funds Rate has little impact on the everyday lives of people like us because its an interest rate that banks use in lending to each other.  Think of it like an interest rate "among friends" -- a little bit lower than what you'd charge someone else, but still high enough to get compensated.

Now, there's a little trick here.  The "someone else" are consumers like me and you.  When they're lending to us, the banks tack on three percentage points and they call that new interest rate "Prime Rate". 

This is why Prime Rate is always 3.000% higher than the Fed Funds Rate.

Therefore, because the Fed Funds Rate is now 4.750%, Prime Rate is now 7.750%.

That small detail is a pretty big deal because banks tend to use Prime Rate as a starting point for consumer loans.

• Home equity lines of credit may be Prime + 0.500%
• Credit card loans may be Prime + 8.999%
• Auto loans may be Prime + 2.000%

Here's where it gets interesting for the everyday American. 

According to the L.A. Times, consumer debt in the United States (not including mortgages) is $2,456,000,000.  Chop 1/2 percent from that and Americans are saving $1.228 billion in interest every single month because of what the Fed did.

Now, for people that don't carry consumer debt, the impact is likely to be small.  But many people hold balances on their credit cards, or have not paid down a HELOC.  Starting Tuesday afternoon, the rates on those debts dropped.

Prime Rate was 4.000% in June 2004 before the Federal Reserve started a string of 17 rate hikes to 8.250%.  Tuesday's drop is the first reversal since the rate hikes began.

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.