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What Fed cuts mean for your finances

December 18, 2024

The Federal Reserve’s rate cut Wednesday, its third consecutive since September, is good news for many borrowers.

They should see rates decline on credit cards, home equity and other loans. With inflation ticking slightly higher, it may be the last reduction for a while, though everyone will be listening for fresh clues about where rates may be headed in 2025.

In an effort to tamp down sky-high inflation, the central bank began lifting its benchmark rates rapidly — from near zero to a high of 5.33% — between March 2022 and July 2023. Prices have cooled considerably since then, and the Fed pivoted to rate cuts three months ago.

Since then, however, the course has become less clear cut. Stronger economic data, coupled with potentially inflation-stoking polices from the incoming Trump administration, could make more cuts unnecessary.

Here’s what to watch for in five key areas of your financial life, as rates fall now.

AUTO RATES

What’s happening now: Auto rates and car prices have been trending lower, but they still remain elevated, making affordability a challenge. Dealerships have been offering more incentives and discounts to attract buyers, and that’s expected to continue.

Car loans tend to track with the yield on the five-year Treasury note, which is influenced by the Fed’s key 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 consideration the levels of delinquent auto loans. As those move higher, so do rates, which makes qualifying for a loan more difficult, particularly for those with lower credit scores.

The average rate on new car loans was 6.8% in November, according to Edmunds, a car-shopping website, down from 7.4% in the same month in 2023 and up from 6.6% in 2022. Rates for used cars were higher: The average loan carried an 11% rate in November, slightly lower than 11.6% last November but up from 10.2% in November 2022.

Where and how to shop: Once you establish your budget, get preapproved for a car loan through a credit union or bank (Capital One and Ally are two of the largest auto lenders) so you have a point of reference to compare financing available through the dealership, if you decide to go that route. Always negotiate on the price of the car (including all fees), not the monthly payments, which can obscure the loan terms and what you’ll be paying in total over the life of the loan.

CREDIT CARDS

What’s happening now: The interest rates you pay on any balances that you carry should fall after the Fed has acted, though it may not be instant, and it will vary by card issuer. Last week, the average interest rate on credit cards was 20.35%, according to Bankrate.

Much depends, however, on your credit score and the type of card. Rewards cards, for instance, often charge higher-than-average interest rates.

Where and how to shop: This year, the Consumer Financial Protection Bureau sent up a flare to let people know that the 25 biggest credit-card issuers had rates that were 8 to 10 percentage points higher than smaller banks or credit unions. For the average cardholder, that can add up to $400 to $500 more in interest each year.

Consider seeking out a smaller bank or credit union that might offer you a better deal. Many credit unions require you to work or live someplace particular to qualify for membership, but some bigger credit unions may have looser rules.

Before you make a move, call your current card issuer and ask them to match the best interest rate you’ve found in the marketplace that you’ve already qualified for. And if you do transfer your balance, keep a close eye on fees, whether your initial interest rate expires and if so, what it might jump to.

MORTGAGES

What’s happening now: Mortgage rates have been volatile. Rates peaked at about 7.8% late last year and had fallen as low as 6.08% in late September. But strong economic data and concerns about President-elect Donald Trump’s potentially inflationary agenda nudged rates higher again.

Rates on 30-year fixed-rate mortgages don’t move in tandem with the Fed’s benchmark but instead generally track with the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations about inflation, the Fed’s actions and how investors react.

The average rate on a 30-year fixed-rate mortgage was 6.6% as of Dec. 12, down from 6.69% the previous week and 6.95% a year ago.

Other home loans are more closely tethered to the central bank’s decisions. Home-equity lines of credit and adjustable-rate mortgages — which carry variable interest rates — generally adjust within two billing cycles after a change in the Fed’s rates.

Where and how to shop: Prospective homebuyers would be wise to get several mortgage rate quotes — on the same day, since rates fluctuate — from a selection of mortgage brokers, banks and credit unions.

That should include: the rate you’ll pay; any discount points, which are optional fees buyers can pay to “buy down” their interest rate; and other items like lender-related fees. Look to the annual percentage rate, which usually includes these items, to get an apples-to-apples comparison of your total costs across different loans. Just be sure to ask what’s included in the APR.

SAVINGS

What’s happening now: The rate reversal is likely to be most disappointing for savers, who have benefited from juicier yields on everything from online savings accounts and certificates of deposit to money market funds. Those are all likely to inch lower, in line with the Fed’s move, but some providers may move faster than others. That usually depends on whether the bank wants to attract new customers by dangling yields that are more attractive than their competitors’ offerings.

But you can safely assume that online high-yield savings account will still offer the most competitive rates, with some banks still offering yields of 4.5% to 5.05%, according to Bankrate. Traditional commercial banks’ yields, meanwhile, have remained anemic throughout this period of higher rates. The national average savings account rate was 0.56% in mid-December, according to Bankrate.

Where and how to shop: Rates are one consideration, but you’ll also want to look at providers’ history, minimum deposit requirements and any fees (high-yield savings accounts don’t usually charge fees, but other products, like money market funds, do). DepositAccounts.com, part of online loan marketplace LendingTree, tracks rates across thousands of institutions and is a good place to start comparing providers.

If you’re considering certificates of deposit, now is probably the time to lock in a decent rate if you haven’t already. Online CDs with a one-year term averaged 3.70% in December, according to DepositAccounts.com, down from 4.1% in July.

Check out New York Times finance writer Jeff Sommer’s recent columns for more insight into money-market funds. The yield on the Crane 100 Money Fund Index, which tracks the largest money-market funds, was 4.42% as of Monday, down from 5.13% at the end of July.

STUDENT LOANS

What’s 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’re far easier for teenagers to get, and their repayment terms are more generous.

Current rates are 6.53% for undergraduates, 8.08% for unsubsidized graduate student loans and 9.08% for the PLUS loans that both parents and graduate students use. Rates reset on July 1 each year and follow a formula based on the 10-year Treasury bond auction in May.

Private student loans are a bit of a wild card. Undergraduates often need a co-signer, rates can be fixed or variable, and much depends on your credit score.

Where and how to shop: Many banks and credit unions want nothing to do with student loans, so you’ll want to shop around extensively, including with lenders that specialize in private student loans.

You’ll often see online ads and websites offering interest rates from each lender that can range by 15 percentage points or so. As a result, you’ll need to give up a fair bit of information before getting an actual price quote.

This article originally appeared in The New York Times.

Orange County Register

News Details

What Fed cuts mean for your finances

AUTO RATES

CREDIT CARDS

MORTGAGES

SAVINGS

STUDENT LOANS

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