For the first time in four years, the Federal Reserve cut interest rates by 0.5 percentage points in September 2024, bringing rates to a target range of 4.75% to 5%. This might not sound like a lot, but these rate changes can have significant impacts on your money, from how much you earn on savings to what you pay on loans.

Here are five key things to know about rate cuts to understand the impacts on your money and make the best decisions for your finances.

1. Lower Rates Can Cut Into Savings Growth

If you’re in the habit of putting money into a regular savings account, or a high-yield savings account, a Federal Reserve rate cut likely means your money will earn less interest. That’s because banks and credit unions tend to lower the interest on these variable-rate accounts following rate cuts, which could reduce the growth of your savings over time. However, if your money is in a fixed-rate certificate of deposit (CD), the rate will not change until the CD matures.  Additionally, if inflation stays high and your deposit rates increase, it could erode your purchasing power, since the money in your account might not grow fast enough to keep up with rising costs.

• What it means for you: If you’re saving for a specific goal and thinking of opening a CD, it could be a good idea to lock in rates before they drop further to help you earn more in the long run.

2. Rate Cuts Make Borrowing More Affordable

On the bright side, rate cuts are good news if you have – or plan to take out – a loan. Interest rates on everything from existing variable-rate loans (e.g., HELOCs or credit cards) to new fixed-rate loans (e.g., mortgages and car loans) tend to decrease, making borrowing more affordable. This could mean lower monthly payments on variable-rate loans, or it could be the right time to refinance a mortgage or car loan at a lower rate. However, it’s essential to keep in mind that factors like your credit score will still affect the specific rates you get.

• What it means for you: Now might be a great time to refinance loans or shop for lower-interest borrowing options. If you’re carrying high interest credit card debt, consider taking advantage of zero-percent balance transfer offers or consolidating debt with a lower interest personal loan to reduce your interest payments.

3. Opportunity Exists to Maximize Spending and Investments

Lower interest rates don’t just make borrowing cheaper – they can also encourage spending and investment. Businesses and individuals alike may take advantage of lower borrowing costs to finance new ventures, whether it’s buying a home or expanding a business. For individuals, this could mean greater opportunities to invest, but it’s important to be mindful of potential risks, like increasing personal debt. Investors may also shift money from savings into the stock market in search of higher returns as traditional methods of saving, like savings accounts, become less rewarding.

• What it means for you: Lower rates can stimulate the economy by making spending and investing more attractive, but you’ll want to balance the potential for higher returns with the risk of taking on too much debt or risk.

4. Rate Cuts Mean Lower Mortgage Rates & Refinancing

If you’re a homeowner – or planning to buy a home – a rate cut can be a significant benefit. Lower interest rates on mortgages mean you could potentially pay hundreds of dollars less each month on a mortgage than before Federal Reserve rate cuts and save several thousand dollars over the life of your loan. Therefore, if you’re a current homeowner, now is a good time to consider refinancing at a lower rate to reduce your monthly payments. It’s important to note that with lower borrowing costs, more people might be encouraged to buy homes, which could drive up demand and housing prices.

• What it means for you: Lower mortgage rates could be a great opportunity for buyers and current homeowners looking to refinance to potentially reduce monthly payments. If you’re thinking about buying or refinancing, now could be a good time.

5. Rate Cuts Affect the Broader Economy

One of the reasons the Federal Reserve cuts rates is to stimulate economic growth by making credit more affordable. However, when people and businesses spend more, inflation can rise if demand outpaces supply. This could lead to higher prices for goods and services, reducing your purchasing power over time.

• What it means for you: Rate cuts can help grow the economy by encouraging spending, but they could also lead to higher inflation and a weaker dollar. Keep an eye on how these broader trends could affect your long-term financial plans.

Rate cuts can have significant impacts on a variety of areas in the economy, along with individual and company finances. Whether you’re a borrower, saver or investor, understanding how rate cuts affect your money can help you make more informed financial decisions.

If you’re considering making a financial change in light of rate cuts, such as changing a savings account or getting a loan, learn more about options through Bellco to help you meet your financial goals.

Bellco is federally insured by the NCUA.