By Lauren Young
NEW YORK, Dec 10 (Reuters) - The U.S. Federal Reserve is ending 2025 with a bang, delivering another rate cut for consumers amid an uncertain year for the economy.
The Fed nudged interest rates lower by a quarter-percentage point on Wednesday, adding to two prior cuts in 2025.
That's good news for borrowers but not so much for savers.
"The accumulated savings from the Fed’s moves are starting to add up to real money," says Matt Schulz, chief consumer finance analyst at LendingTree and
author of “Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life.”
Here is how the latest rate cut will impact your wallet.
CREDIT CARD RELIEF MODEST BUT MEANINGFUL
Credit card rates are at their lowest since April 2023. Even so, the average annual percentage rate (APR) on a new card offer is 23.96%, which is still sky-high but down almost a full percentage point from last year’s record 24.92%.
"A quarter-point cut is a drop in a very expensive bucket," says Patrick Huey, a certified financial planner at Victory Independent Planning in Naples, Florida. "Any relief should be used to accelerate payoff, not justify new balances."
Indeed, the average credit card balance is $10,951 per household, which is $2,062 below the all-time record, according to WalletHub’s latest Credit Card Debt Study. A quarter-percentage-point cut will translate into a savings of roughly $1.93 billion in interest during the next 12 months, WalletHub says.
If you're drowning in credit card debt, consider debt consolidation, advises Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. With the average personal loan at 11%, you can bring down your monthly payments significantly, and "get on the road to a much better place," Raneri says.
MORTGAGE RATE OUTLOOK BRIGHTENS A BIT
Do not expect 30-year mortgage rates to fall in lockstep with the latest rate cut. Mortgage rates follow U.S. Treasury yields along with inflation expectations. A cut might nudge mortgage rates lower over time but not overnight.
The bright spot for homebuyers is that mortgage rates continue to hover near the lowest levels in more than a year. Mortgage rates currently average at 6.32% for 30-year fixed loans and 5.72% for 15-year fixed loans, Bankrate says.
LendingTree's Schulz is optimistic that rates will fall below 6.00% in 2026, even if only briefly: "That would likely spur more Americans to refinance their current high-rate mortgages and possibly even to consider shopping for a new home."
A November LendingTree study found that refinancing your home at the lowest rate offered could save some homeowners $50,000 or more over their current mortgage.
Home equity lines of credit are different. They usually track the prime rate, which closely follows the Fed funds rate, so a cut typically shows up within two billing cycles.
SAVERS FACE CONTINUED PRESSURE
"Lower rates stink for savers," LendingTree's Schulz says.
Do not park too much cash in your bank account: the average national savings account yield is 0.61%, Bankrate says. By contrast, the best high-yield savings accounts are paying upwards of 4%, which is more than six times higher than the average.
If you do not need to tap your cash reserve for several years, your best bet is longer-term certificates of deposit and MYGAs (multi-year guaranteed annuities), Huey says.
"CDs work well for FDIC-insured, defined-term cash," he explains. "MYGAs, issued by insurers, can offer higher fixed rates and tax deferral, but come with surrender charges and insurer credit risk, so time horizon and due diligence matter."
STOCK MARKETS ALREADY PRICED IN CUT
The rate cut is already priced into equities, although Fed commentary — especially any guidance about next year — can move the markets. Ditto for upcoming economic data.
The recent government shutdown, which lasted 43 days, continues to cast a long shadow on the U.S. economy, particularly when it comes to measuring the impact of inflation, says Stephen Kates, a certified financial planner and financial analyst at Bankrate.
"It's really causing some discomfort for the Fed and certainly for the rest of us who are trying to figure out exactly what the economy is doing," Kates says. "We don't have other alternative data sources around inflation like we do for the labor market."
Kates expects at least one more rate cut in 2026. "I do not see a recession on a horizon," he adds. "I think corporate earnings will remain strong, and the market is going to go up over the long-term."
SHORT-TERM BONDS FEEL CUT FIRST
Bonds feel the shift fastest at the short end of the yield curve: T-bill and short-duration fund yields tend to trend lower as rate cuts accumulate.
"Intermediate-term bonds can see price gains if markets expect further cuts and contained inflation, but there’s still interest-rate risk if the Fed’s path changes," Huey says.
(By Lauren Young; Editing by Lisa Shumaker)
