Interest rates have moved, and the changes affect savings accounts, credit cards, and loans differently

Interest rates are set by the Federal Reserve, which raised them starting in 2022 to fight inflation. Those increases have now stopped, and the Fed has begun cutting rates. The most recent cut happened in December 2024. What this means for you depends on what you're doing with your money: if you're saving, higher rates on savings accounts are good. If you're borrowing, higher rates on credit cards and mortgages cost you more.

The Federal Reserve's benchmark rate—called the federal funds rate—sits between 4.25% and 4.50% as of early 2025. Banks use this rate as a starting point when they set their own rates on mortgages, car loans, credit cards, and savings accounts. When the Fed cuts its rate, banks usually cut theirs too, but not always by the same amount or on the same timeline.

The rates you actually see depend on your credit score, the type of account or loan, and which bank you use. A person with excellent credit might get a mortgage at 6.5%, while someone with fair credit might pay 7.2% for the same loan. Shopping around matters because rates vary significantly between lenders.

Key Takeaways

  • The Federal Reserve cut its benchmark rate in December 2024 and may cut again in 2025, which typically leads banks to lower their rates on mortgages, car loans, and credit cards over time.
  • Savings account rates have fallen from their 2023 highs but remain above 4% at many online banks, though rates vary widely by institution.
  • Credit card rates have stayed high even as the Fed cut, so paying down card balances is more urgent than waiting for rates to drop.
  • Your personal rate depends on your credit score, income, and the lender you choose, so comparing offers from multiple banks is worth your time.
  • Mortgage rates and auto loan rates move with Fed cuts but lag by weeks or months, so timing your application matters if rates are falling.

What the Fed's rate cuts mean for savings accounts

When the Federal Reserve cuts rates, banks respond by lowering the interest they pay on savings accounts, money market accounts, and certificates of deposit (CDs). This happened in 2023 when rates were at their peak—online banks offered 5.25% to 5.35% on savings accounts. As the Fed has cut since then, those rates have fallen to around 4.0% to 4.5% at competitive online banks as of early 2025.

The lag between a Fed cut and a bank's response is usually two to four weeks, but some banks move faster and others slower. If you have money in a savings account earning less than 3.5%, you're likely leaving money on the table. Online banks like Marcus, Ally, and American Express Personal Savings consistently offer higher rates than brick-and-mortar banks, which often pay 0.01% or less.

CDs lock your money in for a set term—three months, one year, five years—in exchange for a may provide rate. If you think rates will keep falling, locking in a CD now at 4.5% for one year protects you from lower rates later. If you think rates will rise, a shorter CD or a savings account gives you flexibility to move your money when rates improve.

Why credit card rates haven't fallen much even as the Fed cut

Credit card companies have been slow to lower their rates even though the Fed has cut. The average credit card rate was around 21% in late 2024, up from about 19% in 2022. This is unusual—normally credit card rates track the Fed's moves more closely. Banks say they're protecting themselves against rising defaults, but the reality is that credit card rates are less regulated than mortgage or auto loan rates, so banks have more room to keep them high.

This matters because if you carry a balance on a credit card, you're paying roughly 21% interest per year on that balance. A $5,000 balance costs you about $1,050 per year in interest alone. Waiting for rates to drop is not a strategy—paying down the balance is. Even if the Fed cuts rates another 1%, your card rate might only drop to 20%, which saves you $50 per year on that same $5,000 balance.

If you're shopping for a new credit card, look at the introductory APR offers (0% for 6 to 21 months on purchases or transfers) rather than betting on the ongoing rate. These offers are real money in your pocket, especially if you're planning to pay off a transfer within the promotional period.

Mortgage rates and how they move with Fed cuts

Mortgage rates don't move dollar-for-dollar with Fed cuts. The Fed's rate influences mortgage rates, but mortgage rates are also shaped by inflation expectations, bond market activity, and what lenders think will happen to the economy. When the Fed cut in December 2024, mortgage rates actually stayed relatively flat or moved up slightly in some cases.

As of early 2025, a 30-year fixed mortgage hovers around 6.5% to 7.0% depending on your credit score and down payment. A 15-year mortgage is typically 0.5% to 1% lower. If you locked in a rate above 7% in 2023, refinancing might save you money if rates drop another 0.5% or more—but refinancing costs 2% to 5% of the loan amount in closing costs, so the math has to work out.

If you're shopping for a mortgage, get quotes from at least three lenders. Rates vary by 0.5% or more between banks, and a 0.5% difference on a $400,000 loan costs you roughly $2,000 per year in extra interest. Lock your rate once you have an offer you're comfortable with—don't wait hoping rates will drop further, because they might not.

Auto loan rates and what to expect

Auto loan rates have also stayed elevated. As of early 2025, rates for new cars range from about 5.5% to 8% depending on your credit score and the loan term. Used car rates are typically 1% to 2% higher. These rates have come down slightly from their 2023 peaks but remain well above the 2% to 3% rates that were common before 2022.

If you're buying a car, your rate depends heavily on your credit score. A score above 750 might get you 5.5% to 6%, while a score below 650 might mean 7.5% to 8.5%. Improving your credit score before you apply can save you thousands over the life of the loan. Even a 1% difference on a $30,000 loan over five years costs you about $1,500 extra.

Some dealerships offer manufacturer incentives like 0% financing for well-may have access to buyers, usually on specific models. These are real deals, but they often come with a higher purchase price or a shorter loan term. Compare the total cost of 0% financing for 48 months against 5% financing for 60 months before you decide.

How to use this information to make decisions about your own money

If you have high-interest debt—credit cards, personal loans, or payday loans—paying it down should come before trying to time interest rate moves. The interest you're paying is almost certainly higher than any rate you could earn on savings, so the math is clear: use extra money to reduce debt first.

If you have money sitting in a low-yield savings account or checking account, moving it to a high-yield savings account or a short-term CD takes 15 minutes and could earn you $100 to $500 per year on $10,000, depending on the rate difference. This is not a one-time decision—rates change, so check your savings rate every three to six months and move your money if a better option appears.

If you're planning to borrow—for a home, a car, or a major purchase—locking in a rate when you're ready to buy is usually smarter than waiting. Rates could go up or down, and the cost of waiting (paying a higher rate if rates rise, or missing out on a lower rate if they fall) is hard to predict. Get your rate locked in and move forward with your purchase.

Frequently Asked Questions

Will interest rates keep falling in 2025?

The Federal Reserve may cut rates further in 2025, but it depends on inflation and economic conditions. The Fed does not announce rate cuts in advance, so you cannot plan around them. If you need to borrow or save, make decisions based on current rates, not predictions about future ones.

Should I lock in a CD now or wait for rates to drop more?

If rates are falling, locking in a CD now protects you from lower rates later. A one-year CD at 4.5% guarantees that return for a year. If you think rates will rise, a savings account keeps your money flexible. There is no perfect answer—it depends on your timeline and how much certainty you want.

Why is my credit card rate still so high if the Fed cut rates?

Credit card companies are not required to lower rates when the Fed cuts. They set rates based on their own risk assessment and competition. If you have a good credit score, you can shop for a card with a lower rate or a 0% introductory offer, then transfer your balance to save on interest.

How much will my mortgage payment drop if rates fall another 1%?

On a $400,000 mortgage, a 1% rate drop saves roughly $400 per month. But refinancing costs 2% to 5% of the loan amount, so you need to stay in the home long enough to recoup those costs. Use a refinance calculator to see if the math works for your situation.

What credit score do I need to get the best interest rates?

Most lenders offer their best rates to borrowers with a credit score of 740 or higher. Scores between 700 and 739 usually get rates 0.25% to 0.5% higher. Below 700, rates climb quickly. If your score is below 700, paying down existing debt and fixing errors on your credit report can improve it before you apply for a loan.