What Does The Fed Rate Cut Mean for Your Credit Cards, Loans, and Savings Accounts

On Wednesday, the US Federal Reserve lowered its federal funds rate for the first time in 2025 by 25 basis points to 4% to 4.25%, citing economic indicators like a job growth slump and elevated inflation. The expects two more rate cuts this year.

The drop in rates is likely to bring some relief from some of the high borrowing costs that have impacted the masses over recent years. Columbia Business School's economics professor, Brett House, expects the rate-cut impact on household finances to be likely mixed.

He believes that people with variable-rate loans or credit outstandings can expect to see the interest rates on these borrowings fall almost immediately. However, some longer-term fixed rates remain higher from a year ago.

While credit cards have a variable rate and the Fed rate cut directly affects it, experts believe the rate could come down by half a point or so on average by early 2026. However, Bankrate's Ted Rossman expects credit card APRs to remain around 20% into early 2026.

Meanwhile, car buyers looking for new auto loans could also see some benefit due to the easing of the federal funds rate. The monthly payments might not decline significantly, but some relief on borrowing costs could lift buyer sentiment, which could, in turn, drive car sales.

Elsewhere, student loan borrowers are unlikely to immediately see any changes in their fixed-rate outstandings, but with private loans, which may be fixed or have a variable rate linked to benchmarks like the Treasury bills, borrowers may benefit from a lower interest rate. Further declines in the rate could encourage private student loan borrowers to refinance into a more affordable loan. Note that refinancing a federal loan into a private student loan will forgo several benefits related to deferments, discharge options, loan forgiveness, and income-driven repayment options.

For savers, rate cuts could lower their yields on high-interest savings accounts and certificates of deposit. While the US Fed does not directly influence deposit rates, yield generally correlates with changes in the federal funds rate. Some online savings accounts and one-year certificate of deposit rates are over 4%, according to Bankrate. 'Savers may want to act now by locking in today's still-high rates before they fall further,' said LendingTree's credit analyst Matt Schulz.

Mortgage rates have come down rapidly, according to the latest Mortgage Bankers Association weekly survey, and have driven a surge in mortgage applications and refinancing. However, an economist at Cotality, Selma Hepp, believes the rate cut yesterday has already been priced into mortgage rates, thus the immediate impact will be minimal.

'However, while a single rate cut may not cause a significant additional drop, a series of anticipated cuts for the rest of 2025 and into 2026 could continue to put gradual downward pressure on mortgage rates,' she stated.

Note that most people have fixed-rate mortgages, and rates won't change unless they refinance or buy another property.

When it comes to consumer finances, Fed chair Jerome Powell said during a press conference yesterday that, 'lower rates should support economic activity. I don't know that one rate cut will have a visible effect on that, but over time, a strong economy with a strong labour market is what we're aiming for.'