Interest rates just dropped and that could be good news for your wallet.
The Federal Reserve’s latest cut to the fed funds rate is already rippling through the economy, lowering borrowing costs and opening new opportunities for consumers. From potentially cheaper mortgages to smarter ways to manage debt, here are 4 moves that could help you save, spend, and invest more strategically.
What is the fed funds rate and why it matters
The fed funds rate is the interest rate banks charge each other for overnight lending—but its influence stretches far beyond Wall Street. When the Federal Reserve lowers this rate, borrowing tends to get cheaper across the board, from mortgages and car loans to credit cards. That’s why a rate cut can be a win for your wallet.
1. Opportunities to refinance your mortgage or buy with confidence
Lower rates can make homeownership more affordable, whether you’re already an owner or shopping for a home.
Why it matters: Mortgage rates have eased from their 2023 peak of 7.79% to around 6.23% as of September 18, 2025.1 That shift means millions of homeowners could refinance and save—and it’s also good news for buyers.
How it works: The Fed doesn’t set mortgage rates directly, but its decisions influence them. When the Fed cuts short-term rates, it often leads to lower yields on Treasury bonds, which mortgage rates tend to follow.
What to consider:
- Homeowners. If your current mortgage rate is above 6.5%, refinancing could save you hundreds each month. On a $400,000 loan, dropping your rate by 0.75 percentage points could mean $200/month in savings.2
- Homebuyers. Lower rates can boost your buying power, reduce monthly payments, and make qualifying for a mortgage easier. A 1 percentage point interest rate drop, from 7% to 6%, could mean getting a 10% larger mortgage for the same monthly payment.3
Bonus tip:
- Looking for mortgage advice? Consider Fidelity’s mortgage program.
2. Shop smart for your next car loan
Falling rates could help you finance a car without stretching your budget.
Why it matters: Auto loan rates have been historically high, with the average annual percentage rate (APR) for new vehicles at 7.67% in May 2025.4 To manage monthly payments, more buyers have been stretching their loans—22.4% of new-car shoppers now opt for 84-month loans, the longest term available. While this lowers monthly payments, it can lead to paying thousands more in interest and staying upside down on the loan longer.
How it works: A Fed rate cut could help reverse this trend, making shorter-term loans more affordable. While auto loan rates don’t move in lockstep with the Fed’s rate, they often follow longer-term bond yields and broader economic conditions.5
When the Fed cuts rates, it has previously led to lower yields on bonds and cheaper credit, which can help bring down auto loan APRs over time.
What to consider:
- Try to avoid overly long loans. A loan of no more than 60 months can make sense if you can manage it. Longer terms often mean higher total interest and slower equity buildup.6
- Prequalify with multiple lenders. Compare rates and terms before you commit.
- Consider refinancing. If you already have a high-rate loan, lower rates may open the door to better terms.
Bonus tips: A shorter loan term—like 36 or 48 months—can save you money over time and help you build equity faster. In many cases, shorter loans may come with a lower APR. Though a longer-term loan may seem less expensive on a monthly basis, the cost adds up over the years.
With the average new-car loan amount now over $42,000, even small differences in interest rates can really matter.7
For instance, borrowing $42,000 for 48 months at 7.6% could leave you with a payment of more than $1,015 each month. The total amount going to interest over 4 years would be over $6,800.
A 72-month loan term at 7.6% brings the monthly payment down to about $730 but would cost over $10,000 in interest payments over 6 years.
Even a small rate change could help you save money. A 48-month loan at 7.1% would lower your monthly payment slightly to about $1,005 per month—and $600 less over the life of the loan.8
Read Fidelity Viewpoints: How to cut costs where it counts
3. Pay down credit card debt quickly
If you tend to carry a balance, a small drop in rates could save you a little money on interest. Of course, it’s always a good idea to pay down high-interest credit card debt as quickly as possible, but a rate cut could help free some money that you could put toward your balances—if you tend to carry a balance from month to month.
The bigger opportunities to save some money may come from consolidating loans or locking in lower rate loans—possibly at a fixed rate.
Why it matters: When the Fed cuts rates, credit card interest rates tend to follow—though not always by much. But with average APRs hovering near record highs, even a modest rate cut could shave dollars off interest payments over time.
The average credit card APR was 22.25% in May 2025.9 The interest rate a credit issuer may offer varies widely by credit score. To learn how to position yourself for the best interest rates on credit cards and loans, read Fidelity Viewpoints: 8 ways to help improve your credit score
How it works:
- Revolvers—people who carry a balance—stand to gain the most. A lower APR means more of your payment goes toward principal, not interest.
- Those consolidating debt may find better terms on balance transfer offers or personal loans, especially if lenders pass along rate cuts quickly.
- Credit card issuers might also sweeten rewards to attract new customers in a lower-rate environment. Read Fidelity Viewpoints: Rewards credit cards guide
What to consider:
- Rate cuts don’t always translate to immediate APR drops. Many cards have variable rates tied to the prime rate, which moves with the fed funds rate—but issuers can adjust their margins, the extra percentage they add to the prime rate.10
- So even if the prime rate drops, your total APR might not fall by much, or at all, if the issuer raises its margin or delays applying the change. Your cardholder agreement should explain how your APR is calculated.
- If you’re shopping for a new card, compare not just APRs but also fees, rewards, and introductory offers. A rate cut might make premium cards more appealing.
Bonus tips: If you’ve been putting off a balance transfer or debt payoff plan, a rate cut could be the nudge to act. You may be able to lock in a lower rate on a personal loan or a balance transfer offer, which could help you pay off debt more quickly and save money.
Read Fidelity Viewpoints: 7 credit card tips
If you’re in the market for a new card, you may be able to earn unlimited 2% cash back when deposited into an eligible Fidelity account with the Fidelity® Rewards Visa Signature® Credit Card.
4. Revisit your savings strategy for better yield
Lower interest rates can directly affect how much you can earn on savings.
Why it matters: High-yield savings accounts have offered relatively high yields recently, but those rates may fall as the Fed cuts. So it could be a good time to reassess where you keep your cash—especially if you’re looking for stability and yield.
How it works: With rates poised to potentially trend lower, now may be the time to help your cash work harder. Here are 3 options to consider:
- Money market funds. These funds invest in short-term, high-quality debt and typically offer competitive yields with daily liquidity. These funds strive to keep a $1 net asset value (NAV), so the price rarely varies. The yield that they return does fluctuate with the Fed’s interest rate policies as well.
- Certificates of deposit (CDs). If you don’t need immediate access to your cash, locking in today’s rates with a CD could be a smart move. CDs offer fixed returns over a set term, which can protect you from future rate declines. Laddering—buying CDs with staggered maturities—can help you stay flexible while capturing yield.
- Short-term bond funds and bond exchange-traded funds (ETFs). These funds invest in bonds with shorter durations, which tend to be less sensitive to interest rate changes than long-term bonds. They can offer a balance of yield and stability. Because bond prices move in the opposite direction as yields, bond funds and bond ETFs could see price appreciation if rates fall further.
What to consider:
- Liquidity needs. Money market funds and short-term bond funds offer easier access than CDs, which typically lock up your money for months or years. But brokered CDs can offer the ability to sell your CD before the term is up.
- Rate outlook. If you’re concerned that rates may fall further, locking in yields now on CDs could make good sense.
- Risk tolerance. While all 3 options are relatively low-risk, bond funds and bond ETFs can fluctuate in value.
Bonus tips: Even with lower rates, accessible accounts like savings or cash management accounts are still a smart place for emergency savings. But for cash you don’t need right away, exploring these alternatives could help you earn more while staying aligned with your goals.
Read Fidelity Viewpoints: 6 ways to earn more on your cash
Use Fidelity’s tool to research CDs, short-term bonds, and more.
Rate cuts can have an impact
When the Fed changes interest rates, it can be more than just a headline. It can also give you a chance to make strategic financial moves. Whether you're borrowing or saving, understanding how lower rates affect you can help you make smarter decisions.