The Federal Reserve lowers interest rates by a quarter point, and here's what it means for you.

• At the conclusion of its two-day conference, the Federal Reserve reduced its benchmark rate by 25 basis points.
• Since September, the federal funds rate has been cut three times, resulting in a total reduction of one percentage point.
• Lower borrowing costs will trickle down to some consumer loans.

The Federal Reserve decreased its benchmark rate by 25 basis points on Wednesday, marking the third rate cut in a row and reducing the federal funds rate by a full percentage point since September.

This move is good news for consumers who have been struggling with high borrowing costs after 11 rate increases between March 2022 and July 2023, although it may take some time for lower rates to have a noticeable impact on household budgets.

In 2022 and 2023, interest rates rose, but now they are falling, according to Greg McBride, the chief financial analyst at Bankrate.com.

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Nearly 9 out of 10 Americans believe inflation is still a pressing issue, and 44% think the Federal Reserve has not done enough to control it, according to a recent survey by WalletHub.

"Mentioning widespread tariffs will make borrowers uneasy," stated John Kiernan, WalletHub's managing editor.

Consumer borrowing costs, including auto loans and credit cards, have been impacted by high interest rates.

The Fed's 0.25 percentage point cut in December will decrease the overnight borrowing rate to a range of 4.25% to 4.50%. Although this rate does not reflect what consumers pay, the Fed's actions will impact the borrowing and savings rates that consumers experience daily.

In the year ahead, the Fed rate cut could impact various financial products such as credit cards, mortgage rates, auto loans, and savings accounts.

Credit cards

The rise in the average credit card rate from 16.34% in March 2022 to more than 20% today is due to the central bank's rate hike cycle.

The average credit card interest rate has only slightly decreased since the central bank began lowering interest rates.

""A rate cut at the end of a tumultuous year is good news, but it doesn't help those with debt much. A quarter-point reduction may reduce monthly payments by a dollar or two, but it doesn't change the fact that cardholders should take control of their high interest rates in 2025," said Matt Schulz, LendingTree's credit analyst."

The best move for those with credit card debt is to consolidate with a 0% balance transfer card or a lower-interest personal loan, according to Schulz.

He said that asking for a lower rate on your current card works way more often than you'd think.

Auto loans

The average auto loan rates for used cars are at 13.76%, while new-vehicle rates are at 9.01%, according to Cox Automotive.

In this scenario, where the loans are fixed and not affected by the Fed's rate cut, Schulz advised taking control of the situation.

By comparing rates from multiple lenders, individuals can potentially save over $5,000 when financing a car, according to a 2023 LendingTree report.

Mortgage rates

Although 15- and 30-year mortgage rates are generally linked to Treasury yields and the economy, they are not following the same path as Fed policy.

The average rate for a 30-year, fixed-rate mortgage rose to 6.75% from 6.67% for the week ending Dec. 13, as per Mortgage Bankers Association.

Since the Fed started reducing interest rates in September, mortgage rates have increased rather than decreased, according to Bankrate's McBride.

"As anticipation for fewer rate cuts in 2025 grows, long-term bond yields have resumed their upward trend, pushing mortgage rates close to 7%," he stated.

Unless they refinance or purchase a new property, most people with fixed-rate mortgages will not experience any changes in their interest rates.

Anyone shopping for a home can still find ways to save.

According to Jacob Channel, senior economic analyst at LendingTree, a $350,000, 30-year fixed mortgage loan with an average rate of 6.6% would cost $56 less each month compared to November's high of 6.84%.

Although it may appear small initially, a monthly discount of approximately $62 translates to an annual savings of $672 and a total of $20,160 in savings over the 30-year duration of the mortgage, as he stated.

Student loans

Most borrowers won't experience much relief from rate cuts since federal student loan rates are set.

If you have a private loan, the rates may be fixed or tied to the Treasury bill or other rates. According to higher education expert Mark Kantrowitz, as the Fed cuts interest rates, the rates on private student loans will decrease over a one- or three-month period, depending on the benchmark.

According to Kantrowitz, a 1% reduction in the total loan payments would result in a monthly loan payment reduction of approximately $1 to $1.25 on a 10-year term.

Borrowers with existing variable-rate private student loans may eventually have the opportunity to refinance into a less expensive fixed-rate loan, but doing so will mean losing the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment, and loan forgiveness and discharge options.

Extending the term of a loan means you will pay more interest on the balance in the long run.

Savings rates

The target federal funds rate has a correlation with the yields of deposit rates, although the central bank does not have direct control over deposit rates.

The Fed's previous rate hikes have led to significant increases in top-yielding online savings account rates, with some accounts still paying as much as 5% — the most savers have been able to earn in nearly two decades — up from around 1% in 2022, according to Bankrate.

"McBride stated that the possibility of the Fed slowing down its pace next year is more advantageous for savers than borrowers. The best yields on savings accounts and certificates of deposit are still higher than inflation."

High-yield savings accounts are nearly as good as top-yielding CD rates, which pay more than 4.5%, according to Bankrate, with one-year CDs currently averaging 1.74%.