The Fed just cut rates. Here’s how to make that move work for your money

The Federal Reserve Open Market Committee on Wednesday decided to cut the central bank’s key overnight lending rate by a quarter of a percentage point, itsfirst cut in nine months. Given the Fed’s dual mandate of keeping inflation in check while maximizing employment, it chose a quarter-point cut in the face of asoftening labor market but also “somewhat elevated” inflation, which is still above the Fed’s 2% target rate and rising. In addition, Federal Reserve Chair Jerome Powell said the effects on inflation of the federal government’s tariffs remain uncertain. Wednesday’s move and any future Fed cuts this year — investors still expect one or two more from the Fed’s October and December meetings — will directly affect your money. The Fed delivers the first interest rate cut of Trump’s second term after nine-month pause Long story short for your savings: It won’t be as readily easy to snag top interest rates on a variety of bank-related accounts, since those will now fall in line with the Fed’s cut. But if you’re willing to do a little yield hunting you could still come out ahead. The same goes for your bond investments. The story for your debts is less rosy at the moment: If you already have high-rate debt it will remain so, albeit a little less high. If you’re in the market for a loan, you will want to shop around carefully and check the fine print on the terms. There are still opportunities to find inflation-beating, solid returns on your savings if you look. Your best bet in most instances will be to select from FDIC-insured online banks, since they typically offer the best returns for high-yield savings accounts and certificates of deposit, said Ken Tumin, founder of DepositAccounts.com, which is now owned by Lending Tree, and the founder of a new site, DepositQuest.com. But tax and inflation considerations might make different types of fixed income assets such as Treasuries, which are backed by the full faith and credit of the United States, more attractive. High-yield bank savings accounts:These accounts have variable rates, so they will fall in the wake of the Fed’s cut. But they tend to fall more slowly at online banks, Tumin said. The overall average rate on a high-yield savings accounts was just 0.61% as of Wednesday, according to Bankrate. But the best deals can be found at online banks, many of which are offering rates ranging from 3.5% to 4.35%. These accounts offer you easy accessibility to your money, so can be a good place to park your emergency savings and any other money you don’t need for a year or two. No-penalty CDs:But there may be an even better option now than high-yield accounts for that kind of money. Specifically, different types of CDs. First, look for a no-penalty CD — which lets you lock down a higher fixed rate for a given period of time and generally will not penalize you if you take out money before the CD matures. The only requirement is that you leave your money invested for 7 days, and some products may limit the number of withdrawals you may make thereafter. But it beats the penalties you will be charged in most CDs, which will reduce the amount of interest you’re paid if you take your money prematurely. Two of the best no-penalty CDs Tumin found this week are: A seven-month, 4% no-penalty CD from Marcus by Goldman Sachs Bank with a $500 minimum deposit requirement; and a 13-month, 4.05% CD from M.Y. Safra Bank, which has a $5,000 minimum deposit requirement. With any CD you’re looking into, check whether it is “callable.” If it is, that means the bank can change its mind as rates are falling and recall its CD. If it does, it will pay you back your principal plus whatever interest is owed to you to date. Ideally it’s best to get a non-callable CD if the yield is attractive. “Add-on” CDs:Another CD variety is the “add-on” CD, which lets you lock in a rate when you invest your money. But you can add more money to it during that term and still get the same rate on your new deposits. While many may charge a penalty if you take your money out before the CD matures, “(it) gives you a hedge against falling rates,” Tumin said, noting that you’re likely to get the best terms from online banks. One of the best he has seen offers a 3.95% rate over a 24-month term. Brokered CDs:If you have some savings that you can hold to a CD’s maturity – so penalties aren’t a concern – look for the best yields on regular CDs. Brokerages offer you the best rates to choose from nationally. And if you’re pressed for the money before the CD matures you can sell it on the secondary market (though you may incur a capital gain if you sell it for more than you bought it for). As of Wednesday, the average interest rate on brokered CDs with durations of between three months and five years were largely between 3.75% and 4% on Schwab.com. Money market funds:Another option for your savings to get the latest and best interest rates, albeit variable, are money market funds, which are not FDIC-insured but are considered very low risk. The average 7-day yield on money market funds as of Wednesday was 4.09%, according to Crane Data. The largest such fund, the Vanguard Federal Money Market Index, which is also among the lowest cost, had a 7-day yield of 4.19% as of Tuesday. Treasury bills:The average yield on Treasury bills ranged from 3.61% for the 18-month T-bill to 3.96% for the three-month, according to Schwab.com data Wednesday. Another option if you don’t want to invest in individual T-bills might be to find a low-cost Treasury bill ETF, Tumin suggested. Make your money work for you by ‘laddering’ bonds or CDs Tax wise, if you live in a high-tax state or city, Treasuries may be more advantageous than savings accounts and CDs. That’s because the interest you’re paid is typically exempt from state and local taxes. If you live in a state with no income tax, however, a CD might be more advantageous if it offers a higher yield. TIPS:Treasury Inflation-Protected Securities are a particularly attractive option for retirees concerned about inflation eroding the value of their savings that produces their income over time. TIPS offer a base “real” rate of return on top of the level ofinflationduring the term of the instrument. “If you hold it to maturity you know you won’t lose anything, and you will get a premium (yield) over inflation,” Tumin said. Some retirees, he noted, create TIPSladdersto insure they get inflation-indexed income every year. Here’s the outlook for credit cards, mortgages and auto loans. Credit cards:The average credit card rate — which at latest reading is 20.12% — has been north of 20% since March 2023, according to Bankrate. After the Fed’s quarter-point cut Wednesday the average may fall, but it could still be a whopping 19.87%. And it may take a couple of payment cycles before your card issuer lowers your rate. How much will that reduction save you? Bankrate estimates that people making just the monthly minimum payment of $173 on the average credit card balance of $6,473 might save all of one dollar a month in payments when their rate is reduced. If you’re paying, say, $400 a month on that balance,the quarter-point rate reduction will reduce the time it takes you to pay off your debt from 20 months to 19 months; and it will only shave $17 off your total interest payments. Whatwillsave you real money is to stop waiting on the Fed to lower rates. If you can’t clear your balance with one or two payments, see if you qualify for a zero-rate balance transfer card, which will buy you up to 24 months to pay off your remaining balance interest free. If you don’t qualify for one, call your card issuer and try to negotiate a lower rate. Or, if you’re really in deep with five-figure credit card debt, Bankrate senior industry analyst Ted Rossman suggests looking into a debt management plan with reputable companies like Greenpath or Money Management International. “You can probably consolidate your 20, 25 or 30% rates into a DMP with a 6% rate lasting four or five years,” Rossman noted in a recent analysis. Mortgages:Unlike most bank savings and loan products, mortgage rates don’t move in direct response to the Fed’s rate decisions. In fact, when the Fed started cutting rates last fall, mortgage rates rose. That’s because they move in response to the 10-year Treasury yield, which reflects how traders feel about the future of the US economy and what they anticipate about the Fed’s next moves. Right now, the market expects there will be three to four quarter-point cuts over the next six months, according to Carlton Davis, a fixed income trader and portfolio manager for Chevy Chase Trust. Mortgage rates are finally sinking — and fast “Mortgage rates may stay relatively flat in the short term since markets had already priced in this (Fed) cut,” said Bill Banfield, Rocket Mortgage’s chief business officer. The good news for home buyers is that mortgage rates have fallen recently. The average 30-year fixed mortgage rate fell to 6.35% for the week ending September 11, down from 6.50% the week before, according to Freddie Mac data. But that is still higher than the 6.20% registered a year earlier. In terms of home affordability, it’s not just interest rates but prices that affect buyers’ decisions. Like the 30-year average, home prices on average are more expensive than they were a year ago. So, while a rate cut may improve market sentiment, the calculator will bethe biggest determinant in your willingness to seal the dealon such an important investment. If you already own a home and plan to borrow against it, you will see a small downward shift in rates. Last week, the average variable rate on a home equity line of credit was 8.10%; and the average fixed rate on home equity loans was 8.23%, according to Bankrate. Those are still much higher than the average mortgage rate. But if you have great credit, a small loan-to-value ratio and shop around for the best deal, you likely can secure the lowest rates available, Bankrate found. Auto loans:In August the average amount borrowed to buy a new car was $42,701, with a monthly payment of $757 at an average rate of 7%, according to car data site Edmunds.com. For used cars, the average financed was $29,585, with an average monthly payment of $565 at a rate of 10.7%. Those rates are above historic norms, said Jessica Caldwell, Edmunds’ head of insights. The Fed’s modest rate cut will only push auto loan rates down a little, so it “won’t dramatically slash monthly payments for consumers. But it does boost overall buyer sentiment,” Caldwell said. “Even if the dollar impact is limited, these cues gain power when paired with sales events like model-year closeouts, Black Friday deals, and year-end promotions.” But read the fine print when presented with lower APR promotions. “These offers are typically limited to shorter terms — often capped at 48 or 60 months — which doesn’t necessarily ease affordability for buyers who depend on longer loan terms to keep monthly payments manageable,” said Joseph Yoon, Edmunds’ consumer insights analyst. “Saving money long term can mean paying more month to month, so shoppers need to carefully weigh whether that trade-off fits within their budget.”