How Fed Rate Cuts Impact Your Finances

When the federal funds rate moves up or down, those movements affect interest rates for both savers and borrowers. The federal funds rate is a key benchmark that influences everything from consumer interest rates to broader economic activity.

High interest rates can reduce the demand for loans by making it more expensive to borrow money. That can often lead to rising unemployment as businesses in higher-income economies are forced to adapt, often reducing output and cutting jobs.

The goal of the Federal Reserve – as specified by Congress – is to maintain maximum employment and stable prices in the United States. Typically, that means an inflation rate of 2% over the long run and the highest level of employment the economy can sustain over time without leading to excessive inflation.

But as you’ve likely heard or felt, dropping interest rates can impact your personal finances in addition to the larger economic trends.

Forbright Bank supports our customers’ financial health, in part by keeping you up-to-date on how Fed rate changes might affect personal finances, including your savings accounts. Below we unpack what this Fed rate cut might mean for your money.

• Savings
• Debt
• Home Buying
• Large Purchases

If you have money in a savings account or plan to open a new Certificate of Deposit (CD), the rate of interest you earn may be lower after a Fed rate cut. Interest rates can even drop in anticipation of a Fed rate change.

But that doesn’t mean you should stop saving or move your money. To lock in today’s rates, consumers might strategize by keeping their emergency fund in a high-yield savings account while stashing extra savings in a Certificate of Deposit (CD) before yields fall.

Whereas high-yield savings accounts rates tend to move along with the federal funds rate, CD rates are locked in for the selected term.

If you already own a Growth CD¹, your CD will continue earning at the rate you locked in until it reaches maturity, even if interest rates change.

And if you’re anticipating future drops, opening a CD now is a good way to lock in current interest rates for an agreed-upon term.

When interest rates drop due to a change in the federal funds rate, you can still earn healthy returns in a competitive high-yield savings account like Growth Savings², with no minimum balance, no fees, and daily compounding interest, compared to traditional savings accounts.

As mentioned, high-yield savings accounts change with the market but could still earn you much more than a regular savings account, helping customers continue to boost their savings during rate cuts.

A lower federal funds rate usually results in lower interest rates for borrowers. That means the interest rate on your credit cards might drop, or you may be able to get a new loan or refinance an existing loan at a lower rate. If you have a credit card balance and your interest rate drops, consider using the money you’re saving on interest to pay off your balance. After paying off debt, you’ll have more money available to save for your future.

If you’re thinking about purchasing a home, a lower interest rate environment means you may be able to get a mortgage with a lower rate. If you already own a home with a higher interest rate, you may be able to save money by refinancing your mortgage at a new, lower rate.

Lower interest rates typically make it cheaper for consumers and businesses to borrow money. If you’ve been waiting to make a large purchase such as a car or a new appliance, a lower interest rate environment can help you save on interest if you’re financing the purchase.

When interest rates drop, it may be wise to resist the temptation to spend more or borrow more, though. Saying committed to your savings goals and focusing on your long-term financial health is always a good financial strategy.

Interest rates will inevitably rise and fall, but by maintaining your commitment to savings with recurring deposits and other long-term habits, you can make progress toward your financial goals regardless of the economic environment.

¹Annual Percentage Yield (APY) is accurate as of October 14, 2025. Advertised APYs / interest rates are subject to change at any time. 3.75% APY based on a 9 month term. Other APYs / interest rates / terms available. $1,000.00 minimum balance required. Early withdrawal penalties apply to all Certificates of Deposit. Early withdrawals are not allowed within the first 25 calendar days for CD products opened online. Available only online.

²Growth Savings annual percentage yield (APY) may change at any time, as communicated in account disclosures.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.