In many ways, measuring the impact of the Federal Reserve’s interest rate cuts is like predicting when the ice will thaw. We know something is happening, but it takes time and there isn’t much of note.
The Fed cut short-term interest rates twice this fall, including a large half-point discount to kick off the low-rate season in September. Market participants widely expect the Fed to cut rates by another 45th at its Dec. 18 meeting.
So what are the results? When it comes to money, like checking accounts, savings accounts, CDs, mortgages, and other loans, you often need fractions to measure the impact. .
You may have noticed that the small amount of interest you earn on your savings account changes over time.
Many checking accounts pay a small amount per dollar. Still, cash is flowing in and out – is it mostly outflow? — of your account when paying your bills. It is the convenience of liquidity that limits earning power.
In other words, it’s hard to notice if your interest-bearing checking account interest rate drops below the current national average of 0.07%.
The payouts for ready-made savings accounts aren’t that high. The latest average is less than 0.50%, and this is also falling. But this is not where a smart saver would seriously keep their money.
High-yield savings accounts are friendly money guardians during times of rising interest rates, paying interest rates of 4% to 5% or more. Currently, the interest rate is below 5%, and some financial institutions are offering interest rates below 4%.
This is one category where shopping can really pay off. However, these interest rate contractions are expected to continue.
Dig deeper: 10 best high-yield savings accounts
If you want to keep more than $10,000 on hand, a money market account is convenient, but the payouts are lower. The national average interest rate is 0.66%.
There’s not much point to it.
A better option may be a high-yield money market account, where interest rates are still above 4%.
Read more: 10 Best High Yield Money Market Accounts
CD rates have been resilient and have fallen only slightly in recent months. The average interest rate on a 12-month CD is 1.83%, but you can find better products if you take the time to shop around and put your money in a bank that isn’t in your city.
Minimum deposit amount and duration will affect the rate.
Details: Best CD rates on the market
Mortgage rates are the most stubborn. Mortgage rates actually rose after the Fed first cut rates in September. Analysts said the Fed’s moves are already “priced in” to mortgage rates.
The problem is that the Fed’s manipulation of the overnight interest rate it charges banks does not directly manipulate mortgage rates. These are more influenced by the bond market, especially the 10-year government bond. Bond markets do not respond to forecasts of economic growth or the outlook for economic growth.
The Fed’s gradual rate cuts alone will not be enough to bring mortgage rates down. Bad economic news, such as a resurgence in inflation or an unexpected recession, could drive interest rates lower. But who would expect that?
Housing industry analysts at the Mortgage Bankers Association, Redfin, Realtor.com, and Zillow expect mortgage rates to remain in the 6% to 7% range through 2025.
Let’s dig deeper: When will mortgage rates fall? 2025 outlook
Personal loan interest rates have been hovering in the 12% range for more than a year. For the three years from 2020 to 2022, it was around 9.5%. Like mortgage rates, it will take time for them to get close to that again.
This is where we can find the most peace throughout the day. Credit card interest affects everyone except those who pay off their balances each month.
Of course, that’s a good thing to aim for, but in the meantime, Fed, give yourself a break. Credit card interest rates are rising from about 15% in 2021 to more than 21% in 2024.
Data on average credit rates after the Fed rate hike is not yet available, but this is one point where we should start to feel comfortable. Preferably soon.
Dig deeper: What credit card users need to know about the Fed’s latest rate cut
Yahoo Finance Tip: The best way to quickly lower your credit card interest rate is to inquire. If you’re making regular payments and see your credit score improve, it’s a good idea to call your credit card company and ask for a lower interest rate.
And there’s also long-term money. Investing in your life after work. Lower interest rates generally promote economic growth, which in turn affects the stock market.
However, retirement accounts should not be adjusted to short-term market movements. By defining your risk appetite and developing your investment strategy, you can prepare for multi-year interest rate cycles.
All you need is an annual performance review and a reality check on your plan.
Read more: When the Fed lowers interest rates, how does it affect stock prices?
