Personal Finance
What that means for you
The Federal Reserve announced Wednesday that it will lower its benchmark rate by another quarter point, or 25 basis points. This marks the third rate cut in a row — all together shaving a full percentage point off the federal funds rate since September.
For consumers struggling under the weight of high borrowing costs after a string of 11 rate increases between March 2022 and July 2023, this move comes as good news — although it may still be a while before lower rates noticeably affect household budgets.
“Interest rates took the elevator going up in 2022 and 2023 but are taking the stairs coming down,” said Greg McBride, chief financial analyst at Bankrate.com.
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Although many people, overall, are feeling better about their financial situation heading into the new year, nearly 9 in 10 Americans think inflation is still a problem, and 44% think the Fed has done a bad job getting it under control, according to a recent survey by WalletHub.
“Add in talk of widespread tariffs, and you’ve got a recipe for uneasy borrowers,” said John Kiernan, WalletHub’s managing editor.
In the meantime, high interest rates have affected all sorts of consumer borrowing costs, from auto loans to credit cards.
December’s 0.25 percentage point cut will lower the Fed’s overnight borrowing rate to a range of between 4.25% and 4.50%. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates consumers see every day.
From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at how the Fed rate cut could affect your finances in the year ahead.
Credit cards
Most credit cards have a variable rate, so there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — near an all-time high.
Since the central bank started cutting interest rates, the average credit card interest rate has only edged off extremely high levels.
“Another rate cut is welcome news at the end of a chaotic year, but it ultimately doesn’t amount to much for those with debt,” said Matt Schulz, LendingTree’s credit analyst. “A quarter-point reduction may knock a dollar or two off your monthly debt payment. It certainly doesn’t change the fact that the best thing cardholders can do in 2025 is to take matters into their own hands when it comes to high interest rates.”
Rather than wait for small annual percentage rate adjustments in the months ahead, the best move for those with credit card debt is to consolidate with a 0% balance transfer card or a lower-interest personal loan, Schulz said.
Otherwise, ask your issuer for a lower rate on your current card — “that works way more often than you’d think,” he said.
Customers shop for groceries at a Costco store on December 11, 2024 in Novato, California.
Justin Sullivan | Getty Images
Auto loans
Auto loan rates are also still sky-high — the average auto loan rates for used cars are at 13.76%, while new-vehicle rates are at 9.01%, according to Cox Automotive.
Since these loans are fixed and won’t adjust with the Fed’s rate cut, “this is another case where taking matters into your own hands is your best move,” Schulz said.
In fact, anyone planning to finance a car may be able to save more than $5,000, on average, by shopping around for the best rate, a 2023 LendingTree report found.
Mortgage rates
Because 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are not falling in step with Fed policy.
As of the latest tally, the average rate for a 30-year, fixed-rate mortgage increased to 6.75% from 6.67% for the week ending Dec. 13, according to Mortgage Bankers Association.
“Mortgage rates have gone up — not down — since the Fed began cutting interest rates in September,” said Bankrate’s McBride.
“With expectations for fewer rate cuts in 2025, long-term bond yields have renewed their move higher, bringing mortgage rates back near 7%,” he said.
But since most people have fixed-rate mortgages, their rate won’t change unless they refinance or sell their current home and buy another property.
Anyone shopping for a home can still find ways to save.
For example, a $350,000, 30-year fixed mortgage loan with an average rate of 6.6% would cost $56 less each month compared to November’s high of 6.84%, according to Jacob Channel, senior economic analyst at LendingTree.
“This may not seem like a lot of money at first glance, but a discount of about $62 a month translates to savings of $672 a year and $20,160 over the 30-year lifetime of the mortgage,” he said.
Student loans
Federal student loan rates are also fixed, so most borrowers won’t find much relief from rate cuts.
However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Treasury bill or other rates. As the Fed cuts interest rates, the rates on those private student loans will come down over a one- or three-month period, depending on the benchmark, according to higher education expert Mark Kantrowitz.
Still, “a quarter-point interest rate cut would reduce the monthly loan payments by about $1 to $1.25 on a 10-year term, about a 1% reduction in the total loan payments,” Kantrowitz said.
Eventually, borrowers with existing variable-rate private student loans may be able to refinance into a less expensive fixed-rate loan, he said. But refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.
Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.
Savings rates
While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.
As a result of the Fed’s previous rate hikes, top-yielding online savings account rates have made significant moves and are still paying as much as 5% — the most savers have been able to earn in nearly two decades — up from around 1% in 2022, according to Bankrate.
“The prospect of the Fed moving at a slower pace next year is better news for savers than for borrowers,” McBride said. “The most competitive yields on savings accounts and certificates of deposit still handily outpace inflation.”
One-year CDs are now averaging 1.74%, but top-yielding CD rates pay more than 4.5%, according to Bankrate, nearly as good as a high-yield savings account.
Hispanolistic | E+ | Getty Images
Many investors are likely still deciding whether to stay in bitcoin or reduce their profits from the last bull run to new all-time highs.
So, after a strong year for bitcoin, it could be time for investors to weigh rebalancing their portfolio by shifting assets to align with other financial goals, according to financial experts.
The price of the flagship digital currency sailed past $100,000 in early December and was still up more than 130% year-to-date, as of Dec. 18.
Some investors now have large bitcoin allocations — and they could have a chance to “take some risk off the table,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
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“The golden rule of ‘never invest more than you’re willing to lose’ comes into play, especially when we’re talking about speculative assets,” said Boneparth, who is also a member of CNBC’s Financial Advisor Council.
Before using bitcoin profits to buy other investments, you may consider using the gains to fund another financial goal, like retiring early or buying a home, he said.
Decide on your ‘line in the sand’
There’s a different thought process if you want the money to stay invested, Boneparth said.
Typically, advisors pick an asset allocation, or mix of investments, based on a client’s goals, risk tolerance and timeline.
Often, there’s a “line in the sand” for the maximum percentages of a single asset, he said.
Typically, Boneparth uses a maximum of 20% of a client’s “investable net worth,” which doesn’t include a home, before he starts trimming allocations of one holding.
‘There’s no free lunch’ with taxes
When selling crypto in a brokerage account or exchange, you could owe taxes on growth, depending on how long you’ve owned the asset, Boneparth said.
“There’s no free lunch,” he said. “Just because it’s crypto doesn’t mean you’re exempt from paying taxes on your gains.”
You’ll owe regular income taxes on profits from crypto owned for one year or less. But you’ll trigger long-term capital gains — taxed at 0%, 15% or 20% — on profitable assets owned for more than one year.
However, you could harvest crypto gains tax-free if you’re in the 0% long-term capital gains bracket for 2024, experts say.
For 2024, you’re eligible for the 0% rate with taxable income of $47,025 or less for single filers and $94,050 or less for married couples filing jointly. These amounts include any gains from crypto sales.
“That’s a very effective strategy if you’re in that bracket,” Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group, previously told CNBC.
The 0% capital gains bracket may be bigger than you expect because it’s based on taxable income, which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
Skynesher | E+ | Getty Images
When it comes to financial resolutions for 2025, there’s one goal that often lands on the top of the list — paying down debt, according to a new survey from Bankrate.
That’s as a majority of Americans — 89% — say they have a main financial goal for 2025, the November survey of almost 2,500 adults found.
While paying down debt came in as a top goal, with 21%, other items on Americans’ financial to-do lists include saving more for emergencies, with 12%; getting a higher paying job or additional source of income, 11%; budgeting and spending better, 10%; saving more for retirement and investing more money, each with 8%; saving for non-essential purchases, 6%; and buying a new home, 4%.
Those goals cap off a year that had some financial challenges for consumers. Some prices remain elevated, even as the pace of inflation has subsided. As Americans grapple with higher costs, credit card debt recently climbed to a record $1.17 trillion. The average credit card debt per borrower rose to $6,380 in the third quarter, according to TransUnion.
Lower interest rates may help reduce the costs of holding that debt. The Federal Reserve moved on Wednesday to cut rates for the third time since September, for a total reduction of one percentage point.
Yet the best-qualified credit card borrowers — those with superior credit scores — still have an average rate of 20.35%, down from around 20.79% in August, according to Mark Hamrick, senior economic analyst at Bankrate.
“It could be injurious to personal finances if people accumulated debt that they’re not substantially paying down,” Hamrick said. “It’s prudent and heartening to see that people are identifying debt broadly as something they want to address in the coming year.”
‘The Fed isn’t the cavalry coming to save you’
To pay down credit card balances — as well as other debts from auto loans or other lines of credit — individuals may need to shift their financial priorities.
A majority of Americans admit to having bad financial habits, finds a recent survey from Allianz Life Insurance Company of North America.
That includes 30% who admit to spending too much money on things they don’t need; 28% who don’t save any money; 27% who only save some money; 23% who aren’t paying down debt fast enough; and 21% who spend more than they earn.
For debtors who want to pay their balances down, the best approach is to take matters into their own hands, said Matt Schulz, chief credit analyst at LendingTree.
“Even though the Fed is reducing rates, the Fed isn’t the cavalry coming to save you,” Schulz said.
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Asking your credit card company for a more competitive interest rate on your debt often works, according to Schulz. About 76% of people who asked for that in the past year got their way, LendingTree found.
“It’s absolutely worth a call,” he said.
Moreover, balance holders also may keep an eye out for 0% transfer offers, which can let them lock in a no-interest promotion for a fixed amount of time, although fees may apply. Or they may consider a personal loan to help consolidate their debts for a lower rate.
Even as debtors prioritize those balances, it’s still important to prioritize personal savings, too. Experts generally recommend having at least three to six months’ living expenses set aside in case of an emergency. That way, there’s a cash cushion to turn to in the event of an unexpected car repair or veterinary bill, Shulz said.
Admittedly, by also prioritizing savings, it will take more time to pare down debt balances, he said. But having savings on hand can also help stop the debt cycle for good.
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