6 Winners and Losers of Fed Rate Cuts

The Fed announced a 0.50% rate cut on Sept. 18, and the interest rate cuts are likely to keep coming. According to the Fed’s latest forecast, America can expect to see another 0.50% of rate cuts by the end of 2024, and another 1.00% of interest rate cuts in 2025.

If the Fed continues with the current path of cutting interest rates, this will have big implications for the economy, your bank account, and your personal finances. Here are a few possible winners and losers as the Fed cuts interest rates.

1. Winner: Borrowers

Lower interest rates are generally good news for borrowers. If you’ve been waiting to take out an auto loan, apply for a personal loan, or transfer a credit card balance to a lower APR card, the Fed’s rate cuts are likely going to be helpful for you.

2. Loser: Savings accounts

Lower interest rates will typically result in a lower yield on savings accounts. Before the Fed’s 0.50% rate cut, the best savings accounts were paying up to 5.31% APY. Those yields are likely to come down quickly. As of Sept. 21, 2024, some of The Motley Fool Ascent’s picks for best savings accounts were offering 4.50% to 4.85% APY.

Those APYs on high-yield savings accounts are still pretty good. It’s still worth opening a savings account and earning as much yield as you can. But if you have cash in a savings account or money market account, you’re likely going to notice a little less growth in your account balance going forward.

3. Winner: Mortgages

Higher interest rates in 2022 and 2023 caused a near-freeze in the U.S. housing market. When mortgage rates go up, home buyers have less purchasing power and might be inclined to keep renting.

And many existing homeowners locked in lower-interest mortgages during the pandemic and didn’t want to give up those cheap rates — even if they wanted to upgrade to a new home. This caused a shortage of housing supply and a shortage of home buyers.

Good news: Lower interest rates are likely to lead to lower mortgage rates. Mortgage rates have already come down in recent months as the bond market anticipated Fed rate cuts. The average 30-year fixed rate mortgage has dropped about 1.70% from the end of October 2023 to Sept. 19, 2024.

This could make refinancing your mortgage a better deal — and could encourage more home buyers and home sellers to get back into the housing market.

4. Loser: CDs

Certificates of deposit (CDs), like savings accounts and money market accounts, are likely to see immediate impacts from lower Fed interest rates. Some of the best 1-year CDs are still offering 4.50% APY or higher, even after the Fed’s 0.50% rate cut.

If you want to lock in a good APY for the next year (or more) in case the Fed keeps cutting interest rates, opening a CD could be a good choice. But beware of early withdrawal penalties — CDs are a big commitment, and savings accounts or money market accounts are likely a better choice for many savers who don’t have lots of extra cash.

5. Winner: Your investment accounts (maybe!)

No one knows for sure what will happen next in the stock market or bond market. But lower interest rates could be good news for investors.

If the economy stays strong and the Fed keeps cutting interest rates into 2025, stock prices could go up. Bond prices could also go up; lower interest rates tend to mean higher prices for bonds.

6. Winner: Your career (ideally!)

The Fed’s 0.50% rate cut is generally being interpreted as a sign of good news and a hopeful future for the U.S. economy and job market. By cutting interest rates, the Fed is sending a signal that it’s less concerned about inflation and more concerned about supporting maximum employment for American workers. Lower interest rates mean that money can flow more freely — and more of it might flow toward you.

With lower borrowing costs for corporations and lower interest rates on fixed income assets like bonds and cash, companies might invest in hiring more people, building more facilities, buying more equipment, and creating new growth. Consumers might get incentivized to spend more money, buy new homes, and keep the economy growing.

A healthy economy could be good news for your career and your earning power. Your next job offer, pay raise, or big promotion might be more possible now, thanks in part to economic optimism generated by lower interest rates.

Bottom line

Fed interest rate cuts are already spreading their influence throughout the U.S. banking system and economy. Even if your CDs and savings accounts don’t pay as high of a yield as they used to, lower interest rates are likely to have positive effects in other areas of your financial life.

Hopefully, we can all be winners of lower interest rates with bigger economic growth in 2025.