The Federal Reserve announced Wednesday that it will lower its benchmark rate by another quarter point, or 25 basis points. This marks the third rate cut in a row — all together shaving a full percentage point off the federal funds rate since September.
For consumers struggling under the weight of high borrowing costs after a string of 11 rate increases between March 2022 and July 2023, this move comes as good news — although it may still be a while before lower rates noticeably affect household budgets.
“Interest rates took the elevator going up in 2022 and 2023 but are taking the stairs coming down,” said Greg McBride, chief financial analyst at Bankrate.com.
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Although many people, overall, are feeling better about their financial situation heading into the new year, nearly 9 in 10 Americans think inflation is still a problem, and 44% think the Fed has done a bad job getting it under control, according to a recent survey by WalletHub.
“Add in talk of widespread tariffs, and you’ve got a recipe for uneasy borrowers,” said John Kiernan, WalletHub’s managing editor.
In the meantime, high interest rates have affected all sorts of consumer borrowing costs, from auto loans to credit cards.
December’s 0.25 percentage point cut will lower the Fed’s overnight borrowing rate to a range of between 4.25% and 4.50%. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates consumers see every day.
From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at how the Fed rate cut could affect your finances in the year ahead.
Credit cards
Most credit cards have a variable rate, so there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — near an all-time high.
Since the central bank started cutting interest rates, the average credit card interest rate has only edged off extremely high levels.
“Another rate cut is welcome news at the end of a chaotic year, but it ultimately doesn’t amount to much for those with debt,” said Matt Schulz, LendingTree’s credit analyst. “A quarter-point reduction may knock a dollar or two off your monthly debt payment. It certainly doesn’t change the fact that the best thing cardholders can do in 2025 is to take matters into their own hands when it comes to high interest rates.”
Rather than wait for small annual percentage rate adjustments in the months ahead, the best move for those with credit card debt is to consolidate with a 0% balance transfer card or a lower-interest personal loan, Schulz said.
Otherwise, ask your issuer for a lower rate on your current card — “that works way more often than you’d think,” he said.
Auto loans
Auto loan rates are also still sky-high — the average auto loan rates for used cars are at 13.76%, while new-vehicle rates are at 9.01%, according to Cox Automotive.
Since these loans are fixed and won’t adjust with the Fed’s rate cut, “this is another case where taking matters into your own hands is your best move,” Schulz said.
In fact, anyone planning to finance a car may be able to save more than $5,000, on average, by shopping around for the best rate, a 2023 LendingTree report found.
Mortgage rates
Because 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are not falling in step with Fed policy.
As of the latest tally, the average rate for a 30-year, fixed-rate mortgage increased to 6.75% from 6.67% for the week ending Dec. 13, according to Mortgage Bankers Association.
“Mortgage rates have gone up — not down — since the Fed began cutting interest rates in September,” said Bankrate’s McBride.
“With expectations for fewer rate cuts in 2025, long-term bond yields have renewed their move higher, bringing mortgage rates back near 7%,” he said.
But since most people have fixed-rate mortgages, their rate won’t change unless they refinance or sell their current home and buy another property.
Anyone shopping for a home can still find ways to save.
For example, a $350,000, 30-year fixed mortgage loan with an average rate of 6.6% would cost $56 less each month compared to November’s high of 6.84%, according to Jacob Channel, senior economic analyst at LendingTree.
“This may not seem like a lot of money at first glance, but a discount of about $62 a month translates to savings of $672 a year and $20,160 over the 30-year lifetime of the mortgage,” he said.
Student loans
Federal student loan rates are also fixed, so most borrowers won’t find much relief from rate cuts.
However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Treasury bill or other rates. As the Fed cuts interest rates, the rates on those private student loans will come down over a one- or three-month period, depending on the benchmark, according to higher education expert Mark Kantrowitz.
Still, “a quarter-point interest rate cut would reduce the monthly loan payments by about $1 to $1.25 on a 10-year term, about a 1% reduction in the total loan payments,” Kantrowitz said.
Eventually, borrowers with existing variable-rate private student loans may be able to refinance into a less expensive fixed-rate loan, he said. But refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.
Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.
Savings rates
While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.
As a result of the Fed’s previous rate hikes, top-yielding online savings account rates have made significant moves and are still paying as much as 5% — the most savers have been able to earn in nearly two decades — up from around 1% in 2022, according to Bankrate.
“The prospect of the Fed moving at a slower pace next year is better news for savers than for borrowers,” McBride said. “The most competitive yields on savings accounts and certificates of deposit still handily outpace inflation.”
One-year CDs are now averaging 1.74%, but top-yielding CD rates pay more than 4.5%, according to Bankrate, nearly as good as a high-yield savings account.