What a Fed rate cut could mean for your wallet

Eight times a year, the Federal Open Market Committee (FOMC) of the Federal Reserve meets to assess the economy and determine whether it should adjust the federal funds rate. That may not sound like something that would affect you, but it certainly does. 

The Fed’s benchmark rate is used by banks when they borrow and lend money to one another overnight, and the domino effect impacts everything from how much it costs to finance a car to how much interest you’ll earn in your savings account to the stock market’s movements. 

Here’s what to know about the central bank’s upcoming FOMC meeting, and how an interest rate cut could affect your personal finances. 

Will there be an interest rate cut at the next Fed meeting? 

In an effort to fight inflation levels we hadn’t seen in roughly 40 years, the central bank raised the federal funds rate aggressively between March 2022 and July 2023. It then held the rate steady for about a year, cutting rates at the end of last year. So far in 2025, it’s left the rate unchanged at a range of 4.25% to 4.50% — but that may be about to change. 

The Fed’s decision regarding interest rates is coming Sept. 17, and experts predict we may see a rate cut come out of that meeting. To be clear, there’s no way to know for sure what the Fed will decide to do. But as of Sept. 5, the widely-used FedWatch tracker from the CME Group says there’s a 88% chance the central bank will drop the target for the federal funds rate to a range of 4.00% to 4.25% (and 12% chance it will drop even lower). And in August, Fed Chair Jerome Powell indicated that rate cuts could be on the way. 

How an interest rate cut would impact borrowing costs 

The federal funds rate influences how expensive it is for banks to lend money to consumers: When the rate drops, lending becomes cheaper. As a result, interest rates may impact how much interest you have to pay on new personal and auto loans — though it will likely take time. Keep in mind that existing, fixed-rate loans’ interest rates won’t change no matter what the Fed does next. 

With mortgages and credit cards, it’s a bit more complicated. When the Fed cuts rates, the move only directly impacts overnight rates, either for deposits by banks at the Fed or loans banks get from the Fed, explains Tom Graff, chief investment officer of Facet Wealth, a financial planning firm. 

“This does have some impact on mortgage or credit card rates, but it is relatively minor,” he adds. 

Because mortgage rates are influenced by the Fed but not dictated by it, they’re hard to predict. If you’re looking to buy a home or refinance your existing mortgage, you probably want to focus on improving your credit rather than trying to guess where rates are headed next. One option is to use a secured charge card, which can help build your credit history while minimizing risks of adding debt.

As for credit cards, annual percentage rates (APRs) are typically tied to the prime rate, and the prime rate is influenced by the federal funds rate. That means if you have a card with a variable interest rate, which most do, your APR could come down. But you likely won’t see a huge drop and, if your APR does decrease, it will probably take some time to do so. Either way, you’ll still want to pay your bills on time and work on lowering your credit card debt if you have any. 

How an interest rate cut would impact your savings accounts 

When the central bank lowers its benchmark interest rate, banks and credit unions tend to follow by cutting the interest rates that savers earn on savings accounts, certificates of deposit (CDs) and other savings products. 

“It is very likely that if the Fed cuts by 0.25% on Sept. 17, you will see a lower rate on these kinds of accounts the very next day,” Graff says. “You should be smart about how much cash you hold. I would assume the rate being paid on savings vehicles keeps falling.” 

Rate cuts mean less interest income on short-term cash, which will lead to less disposable income for savers, says Thomas Van Spankeren, a wealth advisor and chief investment officer at Rise Investments. He says that savers “should plan around having less disposable income.” 

But keep in mind that you’re still likely to earn more interest on your hard-earned cash in a high-yield savings account than you would in a regular savings account, and these accounts are a good place to store emergency funds and savings you may need in the near term. Many online or mobile-only banks offer rates significantly higher than traditional banks. With Current, you can earn up to a 4.00% boost on the money in your Savings Pods.* Alternatively, if you currently have money in a CD with a fixed rate, that interest rate won’t change.

How an interest rate cut would impact your investments 

Interest rate cuts tend to make it less expensive for businesses and consumers to borrow money, meaning businesses can often grow while consumers spend. As a result, corporate profits often increase. 

“Generally stocks cheer rate cuts at first,” Graff says. So you may see your investments get a boost. 

But don’t get too excited. “If Fed rate cuts can help the economy regain momentum, then it can be a major boost to the economy,” Graff adds. “However, if the Fed keeps cutting because the economy continues to weaken, that tends to be trouble for stocks.” 

As for fixed income, he says that he would be cautious about investing in longer-term bonds. 

“The market is already worried that Fed rate cuts could cause inflation down the road,” Graff says. “The more the Fed cuts, the more this worry will grow, and that will hit long-term bonds the most.”