The Federal Reserve on Wednesday delivered its first rate cut since December, a move that will ripple through everything from home loans to credit cards, although not all Americans will notice the change in the same way.
The Fed cut reduces its federal funds rate — what banks charge each other for short-term loans — by one-quarter point, shaving its target range to between 4% and 4.25%, down from its prior range of 4.25% to 4.5%.
Though incremental, the policy turn is significant. Fed officials foresee two additional cuts in 2025 and one more in 2026, a trajectory that could lower rates by a full percentage point and lighten the load for millions of borrowers. For now, the quarter-point reduction will trickle through unevenly: some borrowers will see relief almost immediately, while others may notice little change, depending on their rates and the products they hold, according to experts.
“Any reduction is welcome, and especially if this is the first of several to come, which it sounds like it might be,”Matt Schulz, chief consumer finance analyst at LendingTree, said in a statement. “That’s a positive thing.”
One area where Schulz doesn’t expect consumers to see significant change is on credit card rates. While banks will lower their annual percentage rates in response to the cut, it’s probably not going to make much of a dent for people who carry a balance, given that the average APR currently stands at about 20%.
“That quarter point isn’t going to make that much of a difference,” Schulz said.
Here’s where you’re most likely to feel an immediate impact from the Fed’s reduction — for better and worse.
Home equity line of credit
A home equity line of credit (HELOC) represents one of the financial products where the Fed rate cut could provide a bigger bang for borrowers’ bucks.
A HELOC is a line of credit based on the value of your home. In some ways, it is similar to a credit card, because it provides a maximum credit line that borrowers can draw down and their interest rates are variable — which means they rise and fall based on the prime rate, which in turn is influenced by the fed funds rate.
If you have a HELOC, you can expect your rate to decline by one-quarter point within a month or two, according to Bankrate. The average HELOC today has a rate of about 8.05%, the financial site notes.
“HELOCs are one of the types of loans that tend to be directly impacted, so if you do have a HELOC, that quarter-point reduction can be pretty significant,” Schulz said.
According to CBS News’ Managing Your Money, that 0.25 percentage-point reduction could trim a borrowers’ costs on a $100,000 HELOC by about $173 annually. Bigger savings could be in store if the Fed carries through with additional rate cuts later this year and in early 2026.
Mortgages
House hunters enjoyed a preemptive benefit from the Fed rate cut, as mortgage rates have declined this month in anticipation of lower rates.
Average rates for a 30-year fixed-rate mortgage fell to 6.35% this week, its lowest level in nearly a year. Just two years ago, mortgages approached 8%, hitting their highest levels since 2000.
Mortgage rates aren’t set by the Fed, but they’re heavily influenced by its policy moves, as well as bond market investors’ expectations for economic growth and inflation.
“It’s not just about what the Fed is doing today, it’s about what they’re expected to do in the future, and that’s determined by things like economic growth, what’s going to happen in the labor market and what do we think inflation is going to be like over the next year or so,” Danielle Hale, chief economist at Realtor.com, told AP News.
While additional rate cuts later this year aren’t guaranteed to result in lower home loan rates, it’s a possibility, said Stephen Kates, financial analyst at Bankrate.
“It means that they probably could go down more, and they may trend in that direction, even if they don’t move in lockstep,” he added.
High-interest savings accounts
Unfortunately, the Fed’s rate cut could have a negative impact on one group: Savers.
Since the Fed started hiking rates in 2022 to battle soaring inflation, high-interest savings accounts and certificates of deposit have been the silver lining for consumers. People who had money to sock away in one of those accounts or a CD could get rates as high as 5% in 2024.
Currently, savers can still find high-interest savings accounts offering 4%, but those might drop soon as banks adjust their offers to reflect the Fed’s rate reduction, Schulz said.
“Expect yields on high-interest savings accounts and CDs to drop. Savers may want to act now by locking in today’s still-high rates before they fall further,” he noted.
contributed to this report.
