How will the Fed rate cut affect your finances?

4 days agoLast Updated: October 31, 2025

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How will the Fed rate cut affect your finances?

By Associated Press | Published: 2025-10-30 12:58:00 | Source: Fast Company – news

The Federal Reserve cut its benchmark interest rate by a quarter point on Wednesday for the second time since September. Before that, she had gone nine months without a break.

The federal funds rate is the rate at which banks borrow and lend to each other.
While the rates consumers pay to borrow money are not directly related to that rate, the shifts affect what you pay for credit cards, auto loans, mortgages and other financial products.

“While the full economic impact of such a move will unfold over time, early indications are that even modest cuts in interest rates could have meaningful consequences for consumer behavior and financial health,” said Michelle Ranieri, vice president and head of U.S. research at credit reporting agency TransUnion.

The Fed has two goals when it sets interest rates: first, to manage prices for goods and services, and second, to encourage full employment. Typically, the Fed would increase interest rates in an attempt to lower and lower inflation to encourage faster economic growth and increased employment. The challenge now is that inflation is above the Fed’s 2% target, but the labor market has been weak. The government shutdown also prevented the collection and release of data that the Federal Reserve relies on to monitor the health of the economy.

However, the Fed expects that it will cut interest rates again before the end of the year.

Here’s what you should know:

The interest on savings accounts will not be attractive

For savers, lower interest rates will slowly erode the attractive returns currently offered through certificates of deposit and high-yield savings accounts.

Three of the five largest high-yield savings accounts saw interest rate cuts after the Fed’s latest rate cut in September, according to Ken Tomin, founder of DepositAccounts.com, while two of the five biggest banks (Ally and Discover/Capital One) cut interest rates on their savings accounts. The highest rates for high-yield savings accounts currently remain around 4.46% to 4.6%.

These are still better than the trends of recent years, and are a good option for consumers who want to earn a return on money they may want to access in the near term. A high-yield savings account generally has a much higher annual rate of return than a traditional savings account. The national rate for traditional savings accounts is currently 0.63%, according to Bankrate.

There may be a few accounts with returns of around 4% through the end of 2025, according to Tomin, but the Fed’s cuts will apply to those offerings, lowering average returns as they do.

The reduction will affect mortgages gradually

For potential homebuyers, the market has already priced in interest rate cuts.

“Mortgage rates, in particular, have responded quickly,” Ranieri said. “Just last week, they fell to their lowest level in more than a year. While mortgage interest rates do not always move in line with the Fed’s target interest rate – often taking into account expected future cuts, continued easing of monetary policy may push interest rates further lower.”

Bankrate financial analyst Stephen Kates said the low interest rate environment will provide some relief to borrowers over time.

“Whether it’s a homeowner with a 7% mortgage or a recent graduate hoping to refinance student loans and credit card debt, lower interest rates can ease the burden on many highly indebted households by opening opportunities to refinance or consolidate,” he added.

Car loans are not expected to decrease soon

Americans have faced steeper interest rates on auto loans over the past three years after the Federal Reserve raised its benchmark interest rate starting in early 2022. Those rates are not expected to drop anytime soon. Analysts say that while the reduction will contribute to eventual easing, it may be slow to arrive.

“If the auto market starts to freeze and people don’t buy cars, we may see lending spreads start to shrink, but interest rates on auto loans don’t move in parallel with the federal funds rate,” Kitts said.

New car prices remain at historically high levels and do not adjust for inflation.

In general, the APR on a car loan can range from about 4% to 30%. Bankrate’s latest weekly survey found that average auto loan interest rates currently stand at 7.10% on a new 60-month car loan.

Credit card rates may be slow to ease

Credit card interest rates currently average 20.01%, and the Fed’s interest rate cut may be too slow to be felt by anyone carrying a large amount of credit card debt. However, any reduction is positive news.

“While inflation continues to put pressure on household budgets, interest rate cuts provide a potential counterbalance by lowering debt servicing costs,” Ranieri said.

However, the best thing for anyone with a large credit card balance is to prioritize paying off debts with high interest rates, seek to transfer any amounts possible to lower APR cards or negotiate directly with credit card companies for accommodation.

The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent organization is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

—Cora Lewis, Associated Press

(tags for translation)Credit Card Debt

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