What does that mean to you?

The U.S. Federal Reserve announced Wednesday that it would cut its benchmark interest rate by half a percentage point, or 50 basis points, paving the way for relief from high borrowing costs that have hit consumers hard.

The federal funds rate, set by the U.S. central bank, is the interest rate at which banks borrow and lend to each other overnight. Although it’s not the rate consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.

Wednesday's rate cut sets the federal funds rate in a range of 4.75%-5%.

A series of interest rate hikes starting in March 2022 has pushed the central bank’s benchmark index to its highest level in more than 22 years, causing most consumers’ borrowing costs to rise — and putting many households under pressure.

Now, with inflation falling, “there are reasons to be optimistic,” said Greg McBride, chief financial analyst at Bankrate.com.

But “a one-time rate cut is not a magic bullet for borrowers with high financing costs, and its impact on households’ overall budgets is minimal,” he said. “What matters most is the cumulative effect of a series of rate cuts over time.”

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“There are always winners and losers when interest rates change,” says Stephen Forster, a finance professor at Ivey Business School in London, Ontario. “In general, lower interest rates benefit borrowers and hurt lenders and savers.”

“It really depends on whether you are a borrower or a saver or whether you currently have fixed borrowing or saving rates,” he said.

From credit cards and mortgage rates to auto loans and savings accounts, here's a look at how the Fed's interest rate cuts will affect your finances in the coming months.

Since most credit cards have a variable interest rate, there is a direct link to the benchmark interest rate set by the Federal Reserve. Because of the central bank’s rate-hiking cycle, the average credit card interest rate has risen from 16.34% in March 2022 to more than 20% today—near an all-time high.

In the future, annual interest rates will start to decline, but even then, they will only decline to very high levels. According to McBride, with a few cuts in 2024, annual interest rates will remain at around 19% in the coming months.

“Interest rates took the elevator as they went up, but they will take the stairs as they go down,” he said.

That makes paying off high-cost credit card debt a top priority because “interest rates won’t come down fast enough to get you out of a tough spot,” McBride said. “Zero percent balance transfer offers are still a great way to boost your credit card debt repayment efforts.”

Although 15- and 30-year mortgage rates are fixed, tied to Treasury yields and the economy, anyone shopping for a new home has lost a significant amount of purchasing power in the past two years, due in part to inflation and Federal Reserve policy moves.

But rates are already much lower than they were just a few months ago. The average interest rate on a 30-year fixed mortgage is now about 6.3%, according to Bankrate.

Jacob Channell, senior economist at LendingTree, expects mortgage rates to remain in the 6% to 6.5% range over the coming weeks, with the possibility of them falling below 6%. But he said they are unlikely to return to their pandemic-era lows.

“Despite the decline in mortgage rates, they remain relatively high compared to most of the past decade. Moreover, home prices remain at or near record highs in many areas,” Channell said. Despite the Fed’s move, “there are a lot of people who won’t be able to buy until the market gets cheaper.”

Although auto loans are steady, high car prices and higher borrowing costs have pushed car buyers “to their financial limits,” according to Jessica Caldwell, head of insights at Edmunds.

The average interest rate on a five-year new car loan is now more than 7%, according to Edmunds, down from 4% when the Fed first started raising rates. However, the Fed’s rate cuts will mitigate the rising cost of financing a car — and will likely bring rates below 7% — with the help of competition among lenders and more incentives in the market.

“Many Americans have held off on car purchases in the hope that prices and interest rates will fall, or that incentives will return,” Caldwell said. “A Fed rate cut won’t get all of those consumers back into showrooms right away, but it will certainly help nudge reluctant car buyers into spending more.”

Federal student loan rates are fixed, so most borrowers won’t be immediately affected by the rate cuts. However, if you have a private loan, those loans may be fixed or have a variable rate tied to Treasury bonds or other rates, meaning that once the Fed starts cutting rates, those private student loan rates will drop over a period of one to three months, depending on the benchmark, according to higher education expert Mark Kantrowitz.

Eventually, he said, borrowers with variable-rate private student loans may be able to refinance to a less expensive fixed-rate loan. But refinancing a federal loan into a private student loan would deprive them of the safety nets that come with federal loans, such as deferrals, forbearances, income-based repayment, loan forgiveness and repayment forgiveness options.

Additionally, extending the term of the loan means you will ultimately pay more interest on the balance.

While the central bank has no direct influence on deposit rates, yields tend to be correlated with changes in the target federal funds rate.

As a result of the Fed’s interest rate hikes, rates on the highest-yielding online savings accounts have seen big moves, now paying more than 5% — the most savers have been able to earn in nearly two decades — up from about 1% in 2022, according to Bankrate.

If you haven’t opened a high-yield savings account or deposited a certificate of deposit yet, you’ve likely already missed the peak interest rates, according to Matt Schultz, a credit analyst at LendingTree. However, he said, “yields won’t drop sharply immediately after the Fed cuts rates.”

While these rates may have reached their maximum, it is still worth taking your time to make any of these moves now before prices drop further, he noted.

The average yield on a one-year CD is now 1.78%, but the highest-yield CDs pay more than 5%, according to Bankrate, which is on par with or better than a high-yield savings account.

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