Top 4 Ways the Fed Rate Cut Will Improve Your Finances

When the Fed cut the federal funds rate by 0.50% on Sept. 18, it signaled big changes for the U.S. economy. Everything from borrowing costs to savings account APYs is affected by Fed rate cuts. But what do the Fed’s latest interest rate moves mean for your money?

There are a few reasons to be hopeful that Fed rate cuts will help make your personal finances better. Many Americans might benefit from lower interest rates on credit cards and loans, and from general economic stimulus that could help drive new investments and create new jobs.

We talked with Gina Seibert, CFO at Pennsylvania State Employees Credit Union (PSECU) to see the top ways that lower interest rates could improve your finances — and what money moves you should consider next.

1. Lower borrowing costs (especially credit cards)

One of the most immediate impacts of the Fed’s action is that it reduces borrowing costs for some loans, such as credit cards and personal loans. Mortgage rates might not go down immediately, or by much, because of this latest Fed rate cut.

That’s because fixed-rate mortgage rates aren’t controlled by the Fed; 30-year mortgage rates are tied to the 10-year Treasury yield, which goes up or down for complex reasons beyond the Fed’s decisions.

The Fed’s recent rate cut is only 0.50%, but a 0.50% lower APR on credit card debt or other loans could still make a valuable difference for people who are paying off debt. “For people who have loans tied to the prime rate, such as credit cards, they’ll likely see some relief as their interest rates decrease,” said Gina Seibert of PSECU. “This could make it easier to manage debt.”

2. Good chance to lock in a high APY on a long-term CD

The Fed so far has only cut interest rates by 0.50%, but it’s probably not done. It expects to cut rates by another 0.50% by the end of 2024 and another 1.00% by the end of 2025. That means now could be a good opportunity for savers to get ahead of future rate cuts and lock in a high APY by opening a CD.

“CD rates will likely decrease in response to the Fed’s move,” Gina Seibert said. “Savvy savers should keep an eye on their returns, particularly for longer-term savings products like CDs.”

If you have enough cash in the bank that you’re not worried about needing to pull money out of your CD early (and owing early withdrawal penalties), now could be a good time to open a CD with a higher APY than might be available in a few months.

Need easier access to your cash, without penalty? The best savings accounts and money market accounts can offer similarly high yields compared to the best CDs — but keep in mind that these accounts’ APYs are not fixed for a certain length of time like a CD.

3. Interest rates could go down even more

Since the Fed’s 0.50% rate cut is likely to be just the beginning of a new era of lower interest rates, people who are thinking about borrowing money to make a big purchase, like an auto loan or a mortgage, don’t have to feel rushed. September 2024 is not your last chance to get a lower APR on a loan.

PSECU’s Gina Seibert agrees that if the Fed keeps cutting rates into 2025, life is likely to get easier for borrowers.

“If you’re looking to borrow, it might be worth waiting a little longer if further rate cuts are anticipated,” Gina Seibert said. “You could potentially secure even lower rates on loans in the near future. Continued rate cuts could mean more favorable terms on new loans, whether for auto financing or mortgages, and credit cards tied to the prime rate would also see lower interest rates.”

4. Good occasion to improve your budget and credit score

Lower interest rates can give everyone a chance to hit the “reset” button on their personal finances and re-evaluate how they want to use their money going forward. Seibert says now is a good time to get back to the basics of personal finance.

“Set clear financial goals and build a budget. It’s also critical to build up an emergency fund, and once that’s in place, actively look for high-yield savings accounts or CDs to grow your savings.”

Lower interest rates make borrowing cheaper for everyone, but the cheapest loans go to people with good credit scores. Now that APRs are falling, it’s a good occasion to check your credit score and see if you can improve it.

“If you’re in the process of establishing or improving credit, don’t overlook its importance,” Seibert said. “Strong credit gives you more flexibility to borrow when needed, especially in a changing rate environment like this one.”

Bottom line

The Fed’s 0.50% rate cut is exciting news for the U.S. economy, and the Fed is likely just getting started with a longer-term series of rate cuts. Whether you’re a borrower or a saver (or both), there are good opportunities to improve your personal finances with lower-interest loans, high-yield savings accounts and CDs, and a stronger foundation for the future.