Use Same HUD Passbook Savings Rate Despite Fed Rate Cut

Recently, the Federal Reserve Bank cut its benchmark federal funds rate by 1 percent in an effort to stimulate the economy as it takes a major hit from the coronavirus pandemic. The decrease was the central bank’s second emergency rate cut in a month.

When the Fed cuts interest rates, consumers usually earn less interest on their savings. Banks will typically lower rates paid on cash held in bank certificates of deposits, money market accounts, and regular savings accounts.

Although the Federal Reserve lowered its benchmark interest rate, there won’t be a change to the method for calculating income generated by assets until HUD announces such a change to the imputed interest rate.

Calculating Income from Assets

As with other income, any income generated by assets is included when determining annual household income—but only if the total cash value of all assets for a household is more than $5,000.

Specifically, the rule states, “When net family assets are more than $5,000, annual income includes the greater of the following: (a) Actual income from assets; or (b) a percentage of the value of family assets based on the current passbook savings rate as established by HUD. This is called imputed income from assets” [HUD Handbook 4350.3, par. 5-7(F)(1)].

Current Passbook Savings Rate

In October 2014, after 20 years of using the same 2 percent imputed interest rate, HUD published Notice H 2014-15 acknowledging that the imputed interest rate didn’t reflect the savings environment at the time and adjusted it to 0.06 percent effective Feb. 1, 2015, for all programs.

At the time, HUD also announced its intention to tie the rate to the current passbook rate and stated that changes would be made on an annual basis. HUD published a second notice, HUD Notice H 2016-01, on Jan. 19, 2016, announcing that the imputed interest rate would remain the same.

Since then, no additional notices have been published. As a result, the imputed interest rate, also known as the passbook rate, currently remains at 0.06 percent. It’s important to note that HUD Handbook 4350.3 hasn’t been updated and still lists the imputed interest rate as 2 percent.