In a move that consumers have been eagerly awaiting, the Federal Reserve is expected to cut its key interest rate on Wednesday.
Economists say this could mark the beginning of a series of reductions, with rates possibly falling by a full percentage point before the year ends.
"I think the market wants it to be half a point," said Aaron Cirksena, CEO of MDRN Capital. "It'll be interesting to see what Jerome Powell comes out and says."
The current rate sits at around 5.33%, but what does this mean for your wallet? The answer depends on whether you're a borrower or a saver. Let's take a closer look at five key areas of personal finance that will be impacted by these rate cuts.
"So, the big four that people generally think about are going to be savings account yield rates, car loan rates, mortgage rates and then credit card interest rates that we're paying," Cirksena said.
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Auto Loans
New car loan rates averaged 7.1% in August, down slightly from 7.4% a year ago. Meanwhile, used car loans remain high, averaging 11.3%.
As the Fed cuts rates, we should expect to see a slight dip in these numbers, but for now, car buyers are still facing significant costs.
Credit Card Debt
With the average interest rate on balances hovering at 22.76%, borrowers could see some relief, though experts warn it may not happen immediately. Credit card rates vary by issuer, and it's expected that these reductions will be gradual.
Housing Market
Mortgage rates have already started to drop, reaching their lowest point since February 2023. A 30-year fixed mortgage now averages 6.2%, down from 7.18% this time last year. However, while lower rates sound promising, high home prices are keeping many potential buyers on the sidelines.
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"I think that's the biggest concern that people have is that if interest rates come down, you might see a spike in demand when it comes to purchasing new homes," Cirksena said. "Which could sort of have the reverse effect actually because it could drive up the cost or the value of homes even more than they already have been driven up."
Savings Accounts
For savers, though, the news isn't quite as rosy. Higher rates on savings accounts and CDs may start to fall as banks respond to the Fed's move. While some institutions may continue offering competitive yields, overall returns on savings are expected to decline.
With rates expected to drop further in the coming months, borrowers may soon find themselves in a better financial position. But for savers, this might signal the end of the more attractive yields we've seen over the past year.
