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As inflation continues to trend downward, the Federal Reserve decreased its federal funds rate by 0.5% on September 18, the first rate drop since 2020. This rate influences interest rates on both loans and deposit accounts.
With rates beginning to drop, now may be a good time to start thinking about what to do with your money to maximize your earnings, save money on existing debt and prepare for a new purchase you may have been holding off on. Powered by Experian's suite of services, you'll have access to tools and features to help take your money further. Here are a few options to consider.
Preparing for Debt Payoff and New Purchases
As loan and credit card interest rates start to decline, paying off debt may be a little bit easier and borrowing more affordable. Keep in mind that rates may not come down significantly right away, but you can check them regularly in Experian's credit card and loan marketplace and be prepared when they do.
Paying Down Existing Debt
Higher APRs on card balances combined with already higher consumer costs led to a 10% annual increase in credit card debt as of the third quarter of 2023. For the 45% of households carrying a balance from month to month, according to Federal Reserve data, decreasing interest rates mean a chance to pay off some of the debt they've accrued.
If you're planning to take advantage of decreasing interest rates to pay down your debts, here are some steps to consider:
- Choose a debt payoff strategy, like the debt snowball or debt avalanche methods
- Adjust your budget to put more money toward your debts
- Consider consolidating your debt to save money on interest and pay off debt quicker
- Seek out the advice of a nonprofit credit counselor
Taking advantage of decreasing interest rates to pay off debt you already carry can give you some financial breathing room, allowing you more money to save, invest or use to make new purchases you've been putting off.
Buying a Car or Refinancing an Auto Loan
If you're planning to buy a car, getting preapproved for an auto loan before you head to the dealership can help ensure you get the best possible rate. Other ways to secure a lower interest rate include:
If you have an existing auto loan, you may be able to refinance the loan at a lower interest rate. Before you start shopping around for a loan, however, sign in to your Experian account to get free access to your FICO® Score☉ and Experian credit report. This will give you an idea of where your credit stands and what rates you may expect.
Buying a Home
If you're thinking about buying a home, it's crucial that you start preparing several months in advance. Start by evaluating your credit profile and financial situation.
Then, get prequalified for a mortgage loan to get a basic idea of how much you can qualify for. Once you're ready to move forward, get preapproved with multiple lenders to ensure you get the best offer.
Other ways to qualify for a lower mortgage rate include:
As market rates go down, it could also be a good time for existing homeowners to evaluate their mortgage loan and see if they can get better terms. If you're curious about your mortgage options, explore personalized solutions from multiple lenders and make informed decisions about your home financing on our partner OwnUp's site (NMLS# 1450805).
Preparing for Other Large Purchases
If you're preparing for another large expenditure, such as home renovations, a medical procedure or a major life event, you could consider a personal loan, home equity loan, home equity line of credit or 0% introductory APR credit card.
Research each of your options to determine which one is best suited to your needs based on interest rates, fees, repayment terms and other factors. You can use Experian's marketplace to do the comparisons for you, showing you a variety of loans you may qualify for based on your credit profile.
Regardless of your financial need or the type of loan you're considering, monitoring your credit with Experian can help you evaluate your credit health and better understand your borrowing options. As part of your Experian membership, you'll get real-time alerts when things change in your credit profile and guidance on the factors impacting your personal credit report, helping you take control of your financial health.
Find a personal loan matched for you
Savings and Investment Tips for Falling Interest Rates
As interest rates fall, evaluate your current savings and investment accounts to determine whether to make some adjustments to your strategy. Here are some potential paths to consider.
Open a CD as Soon as Possible
If you have some cash that you don't need anytime soon, it could make sense to open a certificate of deposit (CD) account right away to take advantage of the current high yields.
Like savings accounts, CDs offer rates that fluctuate over time. However, once you open a CD, the rate at the time of the account opening will remain fixed for its term, which can range from one month to several years. So if market rates start to decline, you'll still enjoy a high yield until your CD matures.
That said, CDs can assess sizable penalties if you withdraw your funds before the account's maturity date. As a result, it's crucial that you choose a term based on when you reasonably expect to need the money.
Find High-Yield CDs
If you want to use CDs as part of your broader savings and investment strategy, here are a couple approaches you can take to balance your risks and returns:
- CD ladder: CD laddering involves spreading out your funds across three or more CDs with different terms, allowing you to take advantage of different interest rates while staggering your maturities for better access to your funds.
- CD barbell: The CD barbell method is similar to CD laddering but only involves two CDs, one with a long term and the other with a short term. Consider this option if you want to manage fewer accounts and don't anticipate needing regular access to your money.
Learn more >> Are CDs Worth It?
Hold Steady in a High-Yield Savings Account
High-yield savings account (HYSA) interest rates will likely go down over the next few years. However, it may still be the best place for your money if you need your funds to remain safe and liquid.
HYSAs offer easy access to your money, and there's also no risk of losing money to early withdrawal penalties or investment losses. This option is particularly worth considering for an emergency fund, a down payment fund or any other short-term savings goal.
Even if you're earning a solid interest rate on your current savings account, here are some potential high-yield savings account strategies you can pursue:
- Shop around. It can be worthwhile to shop around and compare HYSAs to ensure you're getting the best rate. In particular, online banks may continue to offer better yields than traditional banks and credit unions. Keep in mind, though, that some online banks offer HYSAs but few or even no other banking products and services. What's more, many don't allow you to deposit or withdraw cash in person.
- Open a dedicated HYSA. If you're working toward a specific savings goal, such as a home down payment, home renovations or a vacation, it can help to have a dedicated savings account for it. If you don't want to switch banks entirely to get better rates, you could open a high-yield savings account for that specific objective to take advantage of high rates while you can.
Learn more >> Best High-Yield Savings Accounts
Open a Brokerage Account
If you have excess funds that you don't need for emergencies or other short-term needs, consider opening a brokerage account to invest some of your money.
While investing your money can expose you to various risks and potential losses, it can also help you earn a higher return than what you could get with a CD or HYSA. Your funds will also be more liquid compared to a CD, though it can take a few days to get your cash after selling a position.
If you're thinking about opening a brokerage account, here are some strategies to keep in mind:
- Shop around. Take some time to compare online brokers based on the services you're looking for, account and investment options, fees and other features that are important to you.
- Minimize your risks. Once you open an account, look for opportunities to diversify your portfolio and minimize your risks. In particular, you may want to focus on mutual funds and exchange-traded funds as you get started rather than investing in individual stocks. It's also worth considering a strategy like dollar cost averaging, which involves investing a set amount in regular intervals to help blunt the impact of short-term market volatility.
Learn more >> How to Choose an Investment Strategy
The Bottom Line
Over the past couple years, consumers have enjoyed high interest rates on savings and CD accounts—but have also paid higher rates on loans and credit products. As the Federal Reserve starts cutting its federal funds rate, you can expect your savings and loan rates to follow suit.
As you consider your options, think carefully about your financial needs and goals to determine the best path forward. Use your Experian membership to help you save money, monitor your credit, keep track of loan rates and more—and take charge of your financial future as interest rates decrease.