the Fed cut interest rates, with more to come – what you should know
Answering your questions about loan, credit card and mortgage rates
By the end of 2024, the overall cost of borrowing to buy your dream car or vacation home could become more affordable, thanks to lower interest rates. But first, turn your interest to a few factors.
The U.S. Federal Reserve cut the target range for the Federal Funds Rate from the historic 23-year high by 0.50% in September. Experts predict there will be more cuts to come.1
If continued cuts occur, borrowing often becomes more affordable for consumers because interest rates on loans come down, as well. But be mindful: The size of the Fed’s cuts aren’t guaranteed; nor is the amount you may save.
Let’s take a look at what these cuts may mean for the average consumer and address any questions you might have.
How Fed decisions affect your wallet
Think of the Federal Reserve as the Bank of the United States. It supervises the country’s monetary and financial systems with the goal of maintaining our economic security.
These duties include setting the target interest rate for the Federal Funds Rate, which banks often use as a basis to set their own rates. The Fed adjusts the Federal Funds Rate in correlation with economic factors such as inflation, which the Fed tries to keep at 2% to 3%.
In order to help manage inflations, the Fed may choose to trim this rate, so borrowing money is less expensive, and consumers can afford bigger purchases.
You probably have questions about what this means for you and we are here to help.
We’re answering your big interest rate questions
Here’s our take on how the predicted Fed cuts might affect you.
1. How do lower rates influence my credit card debt?
This answer depends on your credit history and other factors, such as when you applied for the card.
As of early September, the average rate on new cards reached 23.18%, while the average on existing accounts was 22.76%, according to WalletHub. But note: People with excellent credit are charged lower rates than those with fair credit. And store credit cards carry an average rate of nearly 33% as of early September.2
The interest you pay probably will not fall immediately, but you might quickly lower your rate by asking the credit card company for a reduction. If that fails, you can apply for a credit card that offers 0% balance transfers or take out a low-interest loan to consolidate your debt. We offer several personal loans that you can compare to find the one that works best for you.
2. Do the Fed's actions make a difference to mortgage loan rates?
When the Fed raises or lowers its “benchmark” rate, mortgage rates tend to follow. As of early September, the average rate on a 30-year fixed mortgage dropped to 6.38%, from an average of 7.23% a year ago.3, 4
The Federal Reserve doesn’t set or determine fixed rate mortgages, but the decisions they make can impact the rates banks offer on these types of products. Fixed rate mortgages are typically tied to the 10 year treasure yield with inflation, supply and demand for lending, and mortgage-backed securities also factoring in to the rates banks offer.5
Adjustable-rate mortgages (ARMs) are more directly impacted by decisions the Fed makes. These rates are typically tied to the Secured Overnight Financing Rate (SOFR) which is impacted by the Fed’s Federal Fund Rate. When the Fed rate goes down, ARMs rates typically follow.5
If you are among those who took a fixed-rate mortgage 12 or 18 months ago, it could be worth looking into refinancing in preparation for more cuts. The Fed cutting their target rates won’t impact your fixed-rate loan unless you take steps to change your loan through refinancing or getting a new mortgage. A mortgage advisor can help you calculate cost-and-benefit factors, such as:
- How long you plan to stay in the home.
- The difference in your monthly payments after subtracting the lowered rate from your current rate.
- The cost of refinancing.
Whether refinancing, getting your first mortgage, or buying a vacation home, you can calculate your savings using our easy mortgage calculator tool, here.
3. What about my auto loans?
Regardless of the Fed’s actions, auto dealers can offer below-average rates to remain competitive, so negotiate. Your offer will depend on your credit rating and borrowing history: the average subprime interest rate on a new car is nearly 11.53% and could remain in the double digits through 2024.1, 6
If the dealer calculates lower-than-expected monthly payments on your loan, resist the urge to make up the difference by putting less money down or buying expensive add-on features. A $30,000 auto loan at 11.53% will cost you $11,700 in interest over six years, while a $25,000 loan would cost you $9,700.6
4. If this is a good time to borrow, is it also a good time to save?
It’s always a good time to save, but as rates decrease you’ll want to consider all your options to match your savings goals. Options include bonds, certificates of deposit (CDs), money market accounts, and treasury securities.7
As a rule of thumb, look for savings options that generate interest income that surpasses inflation, which in mid-August was 2.9%. Review our interest rates on CDs and money market accounts today.
Note: Interest is considered income, so prepare to pay taxes on those earnings.
Your overall credit profile benefits from lower debt
The Fed can impact the interest rates that might alter your loan payments, but you decide which loan types and structures are best for you. Talk to a banking partner for guidance.
Still have questions? Our consumer banking team closely follows interest rates so we can provide up-to-date guidance. Contact one of our team members here.
