How the Fed Rate Cuts Impact Your Finances

What Are the Fed Interest Rate Projections for 2026?

The Federal Reserve started easing its interest rate policy last year, beginning with three rate cuts to end 2024.

In September 2025, the central bank cut the target federal funds rate by 0.25 percentage points to the 4% to 4.25% range. In October, it followed with another 0.25 point reduction, lowering the range to 3.75% to 4%.

Going forward, however, projections vary. For example, analysts at Goldman Sachs expect the Fed to cut rates once more in 2025 and then twice in 2026, bringing the range down to 3% to 3.25%. Morgan Stanley analysts forecast a slightly more aggressive path, which includes four more rate cuts by mid-2026. By the end of next year, they expect a federal funds rate ranging from 2.75% to 3%.

But while rate easing is likely, the timing and extent depend heavily on inflation, employment and global economic risks.

How Fed Rate Reductions Impact Borrowing

Banks use the federal funds rate to determine how much to charge other banks when lending money to meet overnight reserve requirements.

As a result, the rate directly influences the prime rate, which banks and other lenders use to determine interest rates for a variety of loans, including both installment loans and revolving lines of credit. Here are some of the borrowing methods most affected by changes to the Fed rate.

Mortgages

The starting rate for a fixed-rate mortgage or adjustable-rate mortgage may be indirectly influenced by the federal funds rate. However, they're more affected by the 10-year Treasury note yield, which is impacted by inflation and other economic conditions.

If you have a fixed-rate mortgage, your rate will remain unchanged for the life of the loan, regardless of what happens to market rates.

In contrast, if you have an adjustable-rate loan, your interest rate changes regularly based on market conditions. As a result, you'll likely benefit from each rate reduction with a corresponding decrease in your loan's interest rate.

Read more: Compare Current Mortgage Rates

Auto Loans

Auto loans typically have a fixed interest rate, which means that auto loan rates for new borrowers may decrease over the next few months as they catch up to the Fed rate. However, existing borrowers will need to refinance their loans to take advantage of lower interest rates.

Personal Loans

As with auto loans, personal loans tend to have fixed interest rates—though they're usually higher because most personal loans are unsecured.

So, if you're looking to take out a personal loan to consolidate high-interest debt, pay for home renovations, cover medical expenses or anything else, you may expect interest rates on new loans to decline in the short term. However, if you have an existing personal loan, your rate won't change.

Credit Cards

Virtually all credit cards have a variable interest rate, which is determined in part by the prevailing prime rate. As a result, you may get some relief if the Fed continues to slash its interest rate. That said, it may take one to two months after a Fed decision to see your credit card's annual percentage rate (APR) drop.

How Fed Rate Reductions Impact Savings

Banks use customer deposits to fund their loans, and because banks and other lenders are earning more from higher loan interest rates, they may also offer higher interest rates on savings products to encourage more deposits.

However, each financial institution has a different process for determining its savings rates, so the impact of rate reductions will depend on your bank and the type of account.

Traditional Savings Account

Banks that offer traditional savings accounts typically don't offer much higher rates when the Fed rate is high. As a result, your rate likely won't go down by much if the Fed continues to cut rates. The average yield on a traditional savings account is 0.32%, according to Experian data as of October 2025.

High-Yield Savings Account

Banks that offer high-yield savings accounts offer annual percentage yields (APYs) that are much higher than what you can get with a traditional savings account.

For context, the national average interest rate for a high-yield savings account is 1.72%, according to Curinos data. What's more, some of the best high-yield savings accounts offer rates exceeding 3.5% or even 4%.

Because these accounts offer variable rates, however, you may start to see your APY decline or stay the same, depending on the Fed's decisions.

Certificates of Deposit

Certificates of deposit (CDs) offer a fixed interest rate instead of a variable one, which means your APY will remain the same for your chosen term, which can range from one month to several years. CD rates tend to be higher than savings account rates—as of October 2025, the average yield on a 12-month CD is 2.44%, according to Curinos data.

Once the Fed starts cutting its rate, you can expect APYs for new CDs to start declining. However, if you opened a CD before the first rate cut, your fixed rate won't be impacted—though you may get a lower rate when it's time to renew the account at the end of your term, especially if it's a longer-term CD.

Learn more: Best CD Rates

How to Minimize the Negative Impact of Fed Rate Reductions

If you have some flexibility with your financial plan, there are some steps you can take to enjoy the benefits of Fed rate reductions while also minimizing the drawbacks. Options include:

• Hold off on borrowing until interest rates start to decline.
• Look into refinancing existing fixed-rate loans at a lower interest rate.
• Switch to a high-yield savings account to take advantage of higher APYs while you can.
• Consider putting some money in a CD to enjoy a high fixed APY for longer.
• Pay down high-interest debt now to improve your financial flexibility as rates shift.

If you have credit card debt, rate cuts likely won't save you a lot of money on interest charges, so it's best to work on paying off your debt to minimize its impact on your wallet.

The Bottom Line

Although economic conditions can influence loan and credit card interest rates, your creditworthiness also has a major impact on your ability to get favorable credit terms. Check your FICO^® Score^Θ and credit report to evaluate your overall credit health, and consider whether you can take steps to improve your credit score before applying for a loan or credit card.