this Fed Announced another cut in benchmark interest rates on Wednesday quarter pointor 25 basis points. This marks the third consecutive cut in the federal funds rate since September.
For consumers struggling with high levels of stress borrowing costs The move is good news after 11 consecutive interest rate hikes between March 2022 and July 2023 – although it may be some time before lower rates have a noticeable impact on household budgets.
“In 2022 and 2023, interest rates will take the elevator up but take the stairs down,” said Greg McBride, chief financial analyst at Bankrate.com.
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Although many people in general feel much better Regarding their financial situation entering the new year, nearly 9 in 10 Americans think inflation Still a problem, 44% think the Fed is doing a poor job of controlling the problem, according to a recent survey wallet center.
“Add that to widespread tariffs and you’re going to have borrowers feeling uneasy,” said John Kiernan, editor-in-chief of WalletHub.
at the same time, high interest rates Impacting consumer borrowing costs on everything from auto loans to credit cards.
A 0.25 percentage point cut in December will bring the Federal Reserve’s overnight borrowing rate to a range of 4.25% to 4.50%. While that’s not the rate consumers will pay, the Fed’s move still Affects lending and savings rates Consumers see it every day.
From credit card and mortgage rates to car loans and savings accounts, here’s how the Fed’s rate cuts could impact your finances in the year ahead.
credit card
most credit card There is a variable interest rate, so there is a direct link to the Fed’s benchmark. Due to the impact of the central bank’s interest rate hike cycle, the average interest rate on credit cards has risen from 16.34% in March 2022 to more than 20% today – close to record high.
Average credit card interest rates since the central bank cut interest rates only Reached an extremely high level.
“Another rate cut is good news at the end of a tumultuous year, but it ultimately won’t mean much to those with a lot of debt,” said LendingTree credit analyst Matt Schulz. “A quarter-percentage point reduction could be Lower your monthly debt payments by a dollar or two. That certainly doesn’t change the fact that the best thing cardholders can do in 2025 is take care of themselves when it comes to high interest rates.
instead of waiting Small annual percentage rate adjustments for the coming months, best move Schultz says the best approach for those with credit card debt is to use a 0% balance transfer card or a low-interest personal loan.
Otherwise, ask your card issuer about a lower interest rate on your current card—”it’s more effective than you think,” he says.
Customers buy groceries at a Costco store on December 11, 2024 in Novato, California.
Justin Sullivan | Getty Images
car loan
Car loan rates remain high – the average car loan rate for used cars is 13.76%, while new car rates are 9.01%. Cox Automotive.
Because the loans are fixed and won’t adjust as the Fed cuts interest rates, “this is another situation where taking matters into your own hands is the best move,” Schultz said.
In fact, anyone planning to buy a car can save over $5,000 on average by shopping around for the best deal. 2023 LendingTree Report established.
mortgage interest rate
Because 15-year and 30-year mortgage rates are fixed and largely tied to Treasury yields and the economy, they are inconsistent with Fed policy.
As of the latest count, the average interest rate on a 30-year fixed-rate mortgage rose to 6.75% The interest rate for the week ended Dec. 13 was 6.67%, according to the Mortgage Bankers Association.
“Mortgage rates have risen, not fallen, since the Fed began cutting rates in September,” Bankrate’s McBride said.
“Long-term bond yields are moving higher again in anticipation of smaller rate cuts in 2025, bringing mortgage rates back to around 7%,” he said.
But since most people have fixed-rate mortgages, their interest rates won’t change unless they refinance or sell their current home and buy another property.
Anyone buying a home can still find ways to save money.
For example, a $350,000, 30-year fixed mortgage with an average interest rate of 6.6% will cost $56 less per month than November’s high of 6.84%, said LendingTree senior economic analyst Jacob Channel.
“At first glance, this may not seem like a lot of money, but a monthly discount of about $62 equates to a savings of $672 per year, or $20,160 over the life of a 30-year mortgage,” he said.
student loans
federal student loan interest rates Interest rates are also fixed, so most borrowers won’t get much relief from a rate cut.
However, if you have private loans, they may be fixed or they may have variable interest rates tied to Treasury bills or other rates. Higher education expert Mark Kantrowitz said that as the Federal Reserve cuts interest rates, interest rates on these private student loans will fall within one to three months, depending on the benchmark.
However, Kantrowitz said, “A 25 basis point rate cut would reduce monthly loan payments on a 10-year loan by approximately $1 to $1.25 and reduce total loan payments by approximately 1%.”
Eventually, borrowers with variable-rate private student loans may be able to refinance into cheaper fixed-rate loans, he said. But refinancing federal loans into private student loans will give up the safety nets that come with federal loans, such as deferment, forbearance, income-driven repayment, and loan forgiveness and discharge options.
Additionally, extending the term of your loan means you’ll end up paying more interest on your balance.
savings rate
While the central bank has no direct influence on deposit rates, yields tend to be tied to changes in the target federal funds rate.
The highest-yielding online savings accounts have seen significant interest rate changes due to the Fed’s previous rate hikes, and still pay up to 5% — Most savers can make money In the past 20 years, this number has risen from around 1% in 2022, according to Bankrate data.
“The prospect of a slower Fed pace next year is better news for savers than borrowers,” McBride said. “The most competitive yields on savings accounts and certificates of deposits still easily exceed inflation.”
The current average interest rate on a one-year CD is 1.74%, but the highest-yielding CD has an interest rate of over 4.5%, which is nearly as good as a high-yield savings account, according to Bankrate.
