As widely expected, the Federal Reserve lowered its benchmark interest rate on Thursday, which will make it a bit cheaper to borrow money via credit cards, loans and auto financing.
The rate dropped by 25 basis points to a range of 4.50% to 4.75%. This follows a larger 50-bps cut in September, which brought the rate down from a peak of 5.25% to 5.50% for most of 2024.
The Fed began cutting rates in September to help boost the economy as inflation cools and the job market softens. Before that, it spent two years raising rates to curb inflation, which peaked at 9.1% in June 2022. Since then, inflation has fallen to 2.4%, bringing it much closer to the Fed’s 2% target.
In a September speech, Fed Chair Jerome Powell indicated that another 25-bps cut could happen before 2025 if current economic trends hold steady.
The Fed expects the benchmark rate to dip to 3.4% by the end of 2025, which would further increase savings on borrowing costs.
Below is a breakdown of how the recent rate cuts could impact your monthly borrowing costs. The breakdown includes today’s 25-bps cut and the cumulative 75-bps reduction since the Fed began cutting rates in September, as estimated by Bankrate.
Credit cards
For borrowers with a $5,000 balance:
- Savings from today’s 25-bp cut: $1 per month
- Total savings from 75-bp rate cuts since July 2024: Savings of $3 per month
Personal loans
For a new $10,000, 3-year personal loan:
- Savings from today’s 25-bp cut: $1 per month
- Total savings from 75-bp rate cuts since July 2024: $3 per month
Auto financing
On a new $35,000, 5-year auto loan:
- Savings from today’s 25-bp cut: $4 per month
- Total savings from 75-bp rate cuts since July 2024: $12 per month
Home Equity Lines of Credit
On a $50,000 HELOC:
- Savings from today’s 25-bp cut: $10 per month
- Total savings from 75-bp rate cuts since July 2024: $31 per month
Adjustable-rate mortgages
You might see a slight rate reduction, although the savings will depend on your loan size, credit score and current mortgage market conditions. However, borrowers with resetting rates may still face higher rates than before.
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