Today (September 18, 2024), the Federal Reserve Board cut the federal funds rate by 50 basis points (0.50%). This is not a complete shock, but The Federal Reserve’s interest rate cut was bigger than many expected. Until very recently, the conventional wisdom among many financial experts was that the Fed would cut interest rates by just 25 basis points in September 2024.
Instead, the Fed has made a bold policy decision. Lower interest rates have a big impact on savings account rates, credit card rates, mortgage rates, and more. Cheaper money can be good news for the job market, housing market, and the overall economy.
Let’s take a look at what the Federal Reserve’s recent interest rate cuts mean for your money.
Interest rates may fall sooner than expected
With the federal funds rate being cut by 50 basis points, the APYs on the best savings accounts may soon drop by 50 basis points as well. Mortgage rates may fall further than ever before. Borrowing costs in the form of APRs on auto loans and credit cards may also fall.
Our picks for the best high-yield savings accounts for 2024
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Capital One 360 Performance Savings Annual Interest 4.25%
Pricing Information
For the most current interest rates, visit the Capital One website. Advertised Annual Percentage Yield (APY) is subject to change and is accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Member FDIC. |
Annual Interest 4.25%
Pricing Information
For the most current interest rates, visit the Capital One website. Advertised Annual Percentage Yield (APY) is subject to change and is accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. |
Minimum winnings $0 |
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American Express® High Yield Savings 
Annual Interest 4.25%
Pricing Information
As of September 18, 2024, the annual interest rate is 4.25%.
Member FDIC. |
Annual Interest 4.25%
Pricing Information
As of September 18, 2024, the annual interest rate is 4.25%. |
Minimum winnings $0 |
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Discover® Online Discounts 
Member FDIC. |
Minimum winnings $0 |
Most economists The Federal Reserve will continue to cut interest rates. No one knows how much further interest rate cuts will be or when they will occur, but the Fed’s projections indicate that interest rates could fall another 50 basis points by the end of 2024 (when the Fed meets in November and December) and another 100 basis points (1%) in 2025.
What a 50 basis point rate cut means for your money
Some banks have already reduced their APRs on savings accounts and APRs on loans in response to the new federal funds rate. Here are some simple examples of how your personal financial situation might change:
Savings accounts offer low APYs
After the Fed cuts interest rates, the APY on the best savings accounts will fall below 5.00% and likely to 4.75% APY or lower. A half-point drop in your savings account APY means you’ll earn $5 less per year on every $1,000 you save.
Falling CD interest rates
If you already locked in a 5.00% APY CD before the rate cut, congratulations! You got a great deal and earned extra interest that other savers can’t get anymore. As with savings accounts, the top interest rates on newly opened CDs could also fall by 50 basis points because of the Fed’s rate cut, meaning you’ll earn $5 less in interest for every $1,000 you have in your CD.
Lowering the APR on mortgages
Mortgage rates were already falling before the Fed announced its rate cut, which will likely be reflected in mortgage rates soon, which could be good news for home buyers who have been waiting for affordable mortgage rates.
Lower APR on auto loans
People with high credit scores buying new cars are likely to see the biggest immediate benefit from lower interest rates on auto loans. For used car buyers and people with lower credit scores, a 50 basis point reduction in auto loan rates may not make enough of a difference.
But if interest rates continue to fall through the end of 2024 and into 2025, auto loan rates could get low enough to provide financial relief to many car buyers.
The impact of interest rate cuts on the U.S. economy
Are the Fed’s interest rate cuts good news for the U.S. economy or a sign of recession? There is no one right answer to this question, but the general consensus from financial commentators I’ve read today seems to be that the Fed is trying to protect the economy (and spur job growth) by cutting interest rates by 50 basis points rather than 25.
Here are some big takeaways from the Fed’s interest rate cut.
Inflation is “over” for now (enough is enough)
Since it began raising the federal funds rate in 2022, the Fed has been fighting inflation, trying to limit the flow of money into the economy so that consumer prices would remain stable. Inflation is not “over,” but the latest inflation numbers show that inflation (as measured by the Consumer Price Index) was 2.5% year-over-year in August 2024. This is pretty close to the Fed’s inflation target of 2%, which gave the Fed confidence to cut interest rates.
The Fed wants to help create jobs
The Fed has two goals when setting interest rates: 2% inflation and maximum employment. If the economy overheats, inflation will rise too much. But if the economy slows down too much, people will lose their jobs. Ideally, the Fed wants to strike the right balance.
The U.S. unemployment rate is just 4.2%, but it has risen slightly over the past few months, and some recent job creation statistics have been revised downward, with 818,000 fewer jobs expected to be created between April 2023 and March 2024 than originally reported.
A slowing job market increases pressure on the Fed to lower interest rates, which can stimulate the economy and pump money into the economy, encouraging businesses to borrow, invest, and hire.
Conclusion
A 50 basis point interest rate cut by the Federal Reserve would make an immediate difference to your savings account, mortgage rates, and the rest of your financial life. Ideally, lower interest rates would also lead to more jobs, lower borrowing costs, and the beginning of a thriving economy.
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