The moment consumers have been waiting for has finally arrived: The Federal Reserve is set to cut its key interest rate on Wednesday, and signal that more cuts are to come.
The only question is how low interest rates will go from the current 5.33 percent, with some economists saying they could drop by a full percentage point before the end of the year. That number doesn't directly reflect how much you'll have to pay if you're a borrower. I wish credit card companies would charge that little.
Still, the move will ultimately lead to lower interest rates for many borrowers, as well as likely reduce the interest rates paid to savers by financial institutions.
Here are five key areas of your financial life to keep an eye on, now that rates are falling — and expected (at least for borrowers) to drop even more in the months ahead.
Auto Rates
What is happening now: Auto rates and car prices are trending down, but they are still at a high level, making affordability a challenge. But dealerships are offering more incentives and discounts to attract buyers, and this is expected to continue.
Car loans track with the yield on the five-year Treasury note, which is affected by the Fed's prime rate. But other factors determine how much borrowers actually pay, including: your credit history, the type of vehicle, the loan term and the down payment. Lenders also take into account levels of outstanding auto loans. As they rise, so do rates, making it more difficult to qualify for a loan, especially for people with low credit scores.
“As liabilities go down, not only will auto loan rates go down, but more people will have access to credit,” said Erin Keating, executive analyst at Cox Automotive.
According to car shopping website Edmunds, the average rate on a new car loan was 7.1 percent in August, down slightly from 7.4 percent the same month in 2023 and up from 5.7 percent in 2022. Rates for used cars were higher: The average loan rate in August was 11.3 percent, up slightly from 11.2 percent last August and 9 percent in August 2022.
Where and how to shop: Once you've decided on your budget, get pre-approved for a car loan through a credit union or bank (Capital One and Ally are two of the biggest auto lenders) so you have a reference point to compare to financing available through the dealership if you decide to go that route. Always negotiate on the price of the car (including all fees), not on the monthly payment, which can obscure the loan terms and how much you'll pay in total over the life of the loan.
Credit Card
What is happening now: The interest rates you pay on any balances you carry should decrease after the Fed takes action, though that might not happen right away and it can vary by card issuer. As of May, when banks were assessing interest on balances, the average interest rate was 22.76 percent, according to Federal Reserve data.
However, a lot depends on your credit score and the type of card. For example, rewards cards often charge higher-than-average interest rates.
Where and how to shop: Earlier this year, the Consumer Financial Protection Bureau sent out an alert telling people that rates at the 25 largest credit-card issuers were 8 to 10 percent higher than smaller banks or credit unions. For the average cardholder, that could add up to $400 to $500 in interest each year.
Look for a smaller bank or credit union that may offer you a better deal. Many credit unions require you to work or live in a certain location to qualify for membership, but some larger credit unions may have slightly looser rules.
Before you make any moves, call your current card issuer and ask them to match you with the best interest rate on the market that you already qualify for. And if you transfer your balance, keep a close eye on the fees, whether your introductory interest rate expires and, if it does, how much it might go up.
mortgage
What is happening now: Mortgage rates have fallen to their lowest level since February 2023, but more attractive rates aren't going to solve the affordability problem. Housing prices remain high, in large part because there aren't enough homes to meet demand.
Rates on 30-year fixed-rate mortgages do not move in line with the Fed's benchmark but rather generally move in line with the yield on 10-year Treasury bonds, which is affected by a variety of factors, including expectations about inflation, Fed actions and investor reaction.
The average rate on a 30-year fixed-rate mortgage was 6.2 percent on Thursday, down from 6.35 percent last week and 7.18 percent at this time last year. Rates are also more than a percentage point below their most recent peak of 7.22 percent in early May.
Other home loans are more closely tied to central bank decisions. Home-equity lines of credit and adjustable-rate mortgages — which carry variable interest rates — typically rise within two billing cycles after the Fed changes rates.
Where and how to shopIt is wise for prospective home buyers to obtain multiple mortgage rate quotes from different mortgage brokers, banks and credit unions on the same day, as rates can fluctuate.
This should include: the rate you'll pay; any discount points, which are optional fees buyers can pay to “lower” their interest rate; and other items such as lender-related fees. Look for the “annual percentage rate,” which usually includes these items, to get an even comparison of your total costs across different loans. Just be sure to ask what's included in the APR.
Savings Accounts and CDs
What is happening now: This change in interest rates is going to be most frustrating for savers who have taken advantage of better returns on everything from online savings accounts and certificates of deposit to money market funds. All of these are likely to decrease slightly in line with the Fed's move, but some providers may move faster than others. This usually depends on whether the bank is looking to attract new customers by offering more attractive returns than its competitors' offerings.
But you can safely assume that an online high-yield savings account will still offer more competitive rates than traditional commercial banks, whose yields have remained weak during this period of high interest rates (averaging 0.45 percent as of September, according to DepositAccounts.com, part of online lending marketplace LendingTree).
Where and how to shop: Rates are one consideration, but you should also look at the providers' history, minimum deposit requirements and any fees (high-yield savings accounts typically don't charge fees, but other products, such as money market funds, do). DepositAccounts.com, which tracks rates at thousands of institutions, is a good place to start comparing providers.
If you've been considering certificates of deposit, now's probably the time to get a decent rate, if you haven't done so yet. Online CDs with a one-year term averaged 4.97 percent in August, according to DepositAccounts.com. Online savings accounts averaged 4.40 percent in August, down from 5.1 percent the same month last year.
For more on money-market funds, check out our colleague Jeff Sommer's recent column. The yield on the Crane 100 Money Fund Index, which tracks the largest money-market funds, was 5.06 percent on Monday, down from 5.13 percent on July 29.
Student Loans
What is happening now: There are two main types of student loans. Most people turn to federal loans first. Their interest rates are fixed for the life of the loan, they are much easier for teens to get, and their repayment terms are more lenient.
Current rates are 6.53 percent for undergraduate students, 8.03 percent for unsubsidized graduate student loans and 9.08 percent for PLUS loans, which are used by both parents and graduate students. Rates reset each year on July 1 and follow a formula based on the 10-year Treasury bond auction in May.
Private student loans are a bit of a wild card. Graduate students often need a co-signer, rates can be fixed or variable, and a lot depends on your credit score.
Where and how to shop: Many banks and credit unions don’t deal with student loans, so you’ll need to research widely, including lenders that specialize in private student loans.
You'll often see online ads and websites that offer interest rates from each lender that can vary by 15 percentage points or more. As a result, you'll have to provide a lot of information before you can get an actual price quote.