The recent quarter-point interest rate cut by the Federal Reserve has direct repercussions on the American economy. According to Michele Raneri, Vice President and Head of U.S. Research at the credit reporting agency TransUnion, these effects will be seen in the long term, although the consequences for consumer behavior and financial decisions will be significant. Adjusting the rate is the tool the Fed uses when it wants to manage prices (inflation) or promote employment. This reduction causes interest on savings accounts, such as certificates of deposit (CDs) and high-yield savings accounts, to decrease, making them less attractive.
According to the founder of the digital platform DepositAccounts.com, Ken Tumin, three of the five high-yield savings accounts have lowered their rates until this cut, and major banks like Ally, Discover, and Capital One have also reduced them to 4.46% and 4.6%. The beneficial part of this cut goes to mortgages, as they are gradually decreasing. However, credit cards have average interest rates of 20.01%, and regarding car loans, no short-term rate decrease is expected.
Fed interest rate cut
The Federal Reserve lowered its interest rate last September 2025 for the second time this year. Long story short, this means it will benefit you if you borrow money from the bank, and on the other hand, it will hurt you if your goal is to save. To fully understand the consequences of this cut, it is helpful to clarify that the United States federal funds rate is the interest rate at which banks lend money to each other.
This figure is not directly related to consumer rates, but changes in it do affect interest rates on credit cards, auto loans, mortgages, and other financial products. According to Michele Raneri, Vice President and Head of U.S. Research at TransUnion, ‘While the overall economic impact of such a measure will be seen over time, initial indicators suggest that even modest rate cuts can have significant consequences for consumer behavior and financial health”.
What is the goal of this rate cut?
The role of the Federal Reserve is to control prices so they don’t rise too quickly, preventing inflation from spiraling, and to promote employment. If interest rates rise, it’s because the Fed wants to cool down the economy to control inflation, making borrowing more expensive. Conversely, if they lower the rate, as has happened now, the intention is to stimulate the economy, encouraging people and businesses to borrow more, spend more, and hire more. However, the current problem is inflation, which remains higher than the 2% target that the Fed aims for. In this scenario, the Fed has forecasted a new rate cut before the end of the year.
How does this affect your money?
According to Independent, Ken Tumin, founder of DepositAccounts.com, stated: “Three of the five top high-yield savings accounts lowered their rates after the Fed’s latest cut in September, while two of the five major banks (Ally and Discover/Capital One) reduced their savings account rates. The top rates for high-yield savings accounts currently remain between 4.46% and 4.6%”.
This decrease affects the interest rates of certificates of deposit (CDs) and high-yield savings accounts. Although Tumin states that some accounts could continue to offer yields up to 4% until the end of 2025, it is expected that gradual cuts by the Fed will continue to reduce average yields.
Mortgages
While saving and earning money from the interest on these savings becomes more difficult with this drop, the mortgage market is the one that benefits the most. According to Raneri, “Mortgage rates, in particular, have responded quickly. Just in the past week, they fell to their lowest level in more than a year.
Although mortgage rates do not always move in line with the Fed’s target rate — as they often incorporate expected future cuts — the continued easing of monetary policy could well push them even lower.” For his part, Bankrate financial analyst Stephen Kates stated, “Whether it’s a homeowner with a 7% mortgage or a recent graduate hoping to refinance student loans and credit card debt, lower rates can ease the burden on many indebted households by creating opportunities to refinance or consolidate (debt).”
Auto Loans
When it comes to auto loans, the truth is that rates are not expected to decrease anytime soon. According to Kates, “If the automotive market starts to freeze up and people aren’t buying cars, then we might see loan margins begin to decrease, but auto loan rates do not move in sync with the Federal Reserve rate.”
“While inflation continues to put pressure on household budgets, rate cuts offer a potential counterbalance by reducing repayment costs,” said Raneri.
Frequently asked questions
Are more drops expected?
Yes, the Federal Reserve estimates that it will carry out another interest rate cut before the end of the year.
What does it mean for clients?
Long story short, this means it will benefit you if you borrow money from the bank, and on the other hand, it will hurt you if your goal is to save.