The Fed made its big cut on Wednesday. These products are already offering lower rates.
The Federal Reserve made a jumbo rate cut on Wednesday, as the central bank said it now wants to ease up on its economic brakes. That decision is already trickling down into lower rates on some lending products, potentially providing financial relief to millions of Americans.
As of Monday, American Express and US Bank have lowered the offered APRs on several credit cards on their websites by 0.50 percentage points, or the same amount as the Fed's rate cut last week, according to LendingTree credit analyst Matt Schulz.
Mortgage rates also dropped last week, decreasing to their lowest point since February 2023, according to Freddie Mac.
The Fed's rate reduction, its first since March 2020, could help people in the market for a home or automobile purchase by making it more affordable to take out a mortgage or car loan. But even more importantly, the central bank has penciled in several more rate cuts for 2024 and 2025, which could result in significantly lower borrowing costs by this time next year.
"The real impact will come from future reductions, at least one of which is expected to come by the end of this year," Schulz told CBS MoneyWatch.
The post-Fed cut reduction in credit card APRs "will probably only save the average credit card debtor a couple of dollars per month off their bill," Schulz added. "That's certainly better than nothing, but it isn't going to change lives."
The Fed's economic projections show that its members are pegging the median 2024 federal funds rate at 4.4%, while they're forecasting the rate to drop to 3.4% by the end of 2025. That would represent a drop of about 2 percentage points through the end of 2025, which could make a significant difference to borrowers in the market for a car, home or other purchase.
Here's what to know about rates for credit cards, mortgages and other products.
What is today's interest rate?
The Federal Reserve cut its target range to 4.75%-5% on Wednesday, or a reduction of 0.5 percentage points from its prior level, which was at the highest in 23 years.
The effective rate stands at 4.83%, down from 5.33% as of September 18, according to the Fed. The federal funds rate reflects what banks charge each other to borrow money, and that then influences the rates that banks or other lenders charge consumers for loans and other credit products.
Credit card rates
As of Thursday, the average credit card interest rate in America stood at 24.92%, according to LendingTree, which notes that that is tied with the highest since it began tracking average rates in 2019.
It's likely more issuers will lower rates in the next week or two, with "the vast majority of the rest following suit in October," Schulz said.
"The next thing that will be interesting to watch is whether any card issuers choose to get out in front of future rate reductions, in hopes of attracting new applicants," he added.
Even so, the recent rate reductions aren't likely to provide much in savings for people who carry a balance.
- A half-point reduction to 24.42% will save about $1.50 a month in interest for a borrower with a $5,000 balance, who pays $250 each month, Schulz calculated.
- A one percentage point reduction could save about $3.27 a month in interest, he noted.
Mortgage rates
The average rate on a 30-year fixed-rate loan fell to 6.09% for the week ended September 19, according to Freddie Mac. That represents a 0.11 percentage point decline from a week earlier and a 1.1 percentage point drop from a year ago, the financial services company said.
Some mortgage professionals are predicting rates could drop even lower in the next few months, with Debbie Calixto, sales manager at loanDepot, forecasting that the typical mortgage could drop into the mid-5% range by year end.
Savings accounts, CDs
If there's a downside to the Fed's rate cut, it's for savers, who had enjoyed high rates for savings accounts and certificates of deposits.
But even before the Fed's September 18 rate cut, banks were reducing their savings rates, according to financial data company Curinos.
More than half of traditional banks had cut their CD rates in anticipation of the rate cut, while one-third had cut their rates on savings accounts, the company said. But those reductions were relatively small, with most cutting by 0.10 percentage points or less, it found.
"While savers have likely missed the rate peak, it can still be a good time to seek these accounts," Schulz of LendingTree said.
For instance, several banks are offering high-yield savings accounts with APYs of 4.85%. That's down from a peak of 5% or more prior to the rate cut, but still a relatively robust offer.