The Federal Reserve announced on Wednesday it would cut its benchmark rate to the quarter, paving the way for consumers to bail out some of the heavy-heavy borrowing costs.
The federal fund rate set by the Federal Open Market Committee is the interest rate that banks borrow and lend overnight. It’s not a fee paid by consumers, but central bank movements still affect the borrowing and savings rates seen daily.
“We’ve seen a lot of money,” said Brethouse, professor of economics at Columbia Business School.
“For households with variable-rate loans or other forms of credit obligation, they will see the interest rate on that borrowing drop almost immediately,” he said. However, some long-term fixed rates remain stubbornly higher than they were a year ago, he adds, and many Americans have to fight against the prolonged inflation that still drives up the costs of their goods.
From credit cards and mortgage fees to car loans and savings accounts, let’s take a look at all the ways that Fed rate reductions could impact your wallet in the coming months.
Credit Card
Most credit card rates are different, so they are directly connected to the Fed benchmark.
If interest rates are reduced, the prime rate could also drop, and interest rates on credit card debt could continue. But even so, APR only eases very high levels.
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“By early 2026, existing borrowers could see their fees reaching about half a point (probably a little more),” said Ted Rothman, senior industry analyst at Bankrate.
Still, according to Bankrate, the average credit card fee is currently above 20%.
Mortgage fees
Mortgage rates do not track the Fed directly, but are largely linked to the Treasury yields and the economy. The rate is already significantly lower than where it was at the beginning of this year.
Currently, the average rate for a 30-year fixed-rate mortgage is 6.13% as of Tuesday, according to Mortgage News Daily.
“This week’s Federal Reserve cuts are already on price for mortgage fees, so the immediate impact will be minimized,” said Selma Hep, chief economist at Cotality.
“However, a single rate cut may not cause a significant additional drop, but a series of expected cuts from 2025 to 2026 could continue to put gradually downward pressure on mortgage rates,” she said.
However, most people have fixed-rate mortgages, so the rate remains the same unless you refinance or sell your current home or buy another property.
Automatic loan
According to Jessica Caldwell, Edmunds Director of Insights, car loan fees are fixed, but potential car buyers can benefit if the costs of their new loans go down.
According to Edmunds, the average five-year new car loan fee is currently around 7%. Going forward, “a modest Fed rate reduction will not dramatically reduce monthly payments to consumers,” Caldwell said.
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This rate reduction or low APR promotion may be enough to spur the purchase of a car despite the high price of the vehicle, she said. Even with limited savings, “these queues gain power when combined with sales events such as model year closeouts, Black Friday deals and year-end promotions,” Caldwell said.
Student loan
Federal student loan fees are also fixed, and will only be reset once a year on July 1, so most borrowers will not be affected by interest rate cuts anytime soon.
However, if you have private loans, these loans may be fixed or have variable interest rates tied to the Treasury Bill or other benchmarks. This could mean borrowers with large private student loans will automatically get lower interest rates as the Fed cuts interest rates.
If fees continue to drop, ultimately borrowers with fixed-rate private student loans could be able to refinance for cheaper loans, Kantrowitz said.
But refinancing a federal loan with a private student loan would waive “the great benefits of federal student loans,” he said.
Savings rate
“Rate reductions are good for borrowers, but tough for savers,” said Matt Schulz, chief credit analyst at Lendingtree.
While central banks do not directly affect deposit rates, yields tend to correlate with changes in eligible federal funding rates.
As a result, “we expect high profit savings accounts and CD yields,” Schultz said.
For now, according to the Bank Rates, the top yield online savings account and one-year deposit interest certificate pays more than 4%, well above the inflation rate.
“Savers might want to act now by locking up the still-high rates today before they drop even further,” Schultz said.
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