The Federal Reserve on Wednesday cut its benchmark interest rate by 25 basis points in its first cut of the year, marking a move that could ease monthly payments on mortgages, credit cards and other loans.
The Fed’s benchmark rate helps set the prime rate, which banks use to determine how much to charge on many loans. That means Americans with credit card debt or adjustable-rate mortgages (ARMs) could experience some relief, while savers may feel the pinch as banks reduce interest payouts, according to Investopedia.
Credit Cards:
The 25-basis-point cut is expected to save credit card users $1.92 billion in interest over the next year, according to Wallethub.
The impact of a Fed rate cut on credit cards depends on the type of card you have. For fixed-rate cards, the interest usually will not change right away. Most variable-rate cards are tied to the prime rate, so when the Fed cuts rates, interest charges typically decrease a bit. However, credit card companies can still raise rates on fixed-rate cards if they provide notice, according to Investopedia.
Mortgages:
The rate cut can also make borrowing for a home cheaper. However, how much you save depends on the type of mortgage you have, according to Investopedia.
For those with fixed-rate mortgages, your monthly payment will not change, and the only way to take advantage of lower rates is by refinancing into a new loan. For homeowners with ARMs, your payment may go down as these loans reset based on market rates that move with the Fed. Home equity loans and home-equity lines of credit (HELOCs) also track short-term rates, so borrowers here may also see some relief, according to Investopedia.