We’ve seen recent Federal funds interest rate cuts and are likely to see more following the unprecedented raises that the Fed used in ’22 and 23’ to curb inflation. What does that mean for the average American?

As with just about anything – there are two sides to interest rates. Those who need to borrow… will see some relief as borrowing rates should trickle down after a Fed rate reduction. Investors who receive interest on their cash holdings and bond investments will see less coming in.

Personal loan interest rates have risen from just less than 9% on average at the beginning of the Fed rate hikes in 2022 – to almost 12.5% in August of 2024. We can expect those numbers to drift lower as the Fed cuts.

Most federal student loans have a fixed interest rate – Fed policy will not affect existing loans. Private student loans may have a variable rate- so they may come down a bit.

Mortgages have been historically low for almost 20 years. Some still enjoy a fixed interest rate at less than 3%. Earlier this year, they hit almost 8%… and now they’re in the 6-7% range. We can expect to see mortgage rates on a declining trend. Who knows… but they’ll probably settle @ 5% once the Fed is done lowering. 

Credit card interest rates are always much higher because of the risk credit card companies take on to issue that credit. They sky-rocketed and have come down a slight bit. They usually ‘trickle’ down when the Fed lowers rates. The best solution – don’t carry a credit card balance. Save up in a ‘slush’ fund to cover things that you would put on a credit card – then pay off the card immediately. 

Investors will see lower interest paid on bonds, CDs and cash. So, you’ll make less. However, lower rates can help the stock market by making borrowing cheaper for companies looking to expand.