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What Fed rate cuts mean for your wallet: 5 key changes to savings, debt and investments
Yahia Barakah October 22, 2025 at 2:22 AM
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What Fed rate cuts mean for your wallet: 5 key changes to savings, debt and investments (jacoblund via Getty Images)
After keeping rates frozen through most of 2025, the Fed reduced rates by a quarter point in September — the first rate cut of the year. The move came as the labor market showed serious signs of weakening, even though inflation hadn't yet fully cooled to the Fed's 2% target. Now, markets are expecting another quarter-point cut when the Fed meets on October 28 and 29, with over 90% chance of a third cut in December.
August's jobs report showed that only 22,000 new positions were added, while unemployment ticked up to 4.3%. Long-term unemployment has crept higher too, with more than a quarter of jobless workers stuck without work for six months or more. The September jobs report would've given us a clearer picture, but the ongoing government shutdown since early October means there have been no official data releases.
High-yield savings accounts and CDs have already started trimming their rates after the September cut, with more adjustments likely to come. The good news is that borrowers might finally catch a break on credit cards and loans. Here's what you right now to get ahead of these changes.
1. High-yield savings accounts (HYSAs)
Banks are typically among the first to make changes among the first to make changes after a Fed decision, adjusting variable interest rates on deposit accounts, including high-yield savings. When the central bank raises the Fed rate, interest rates on HYSA increase. When it lowers the Fed rate, APYs on HYSAs typically fall.
Are HYSAs still worth it after a Fed rate decision?
Although savings rates typically come down following a Fed rate cut, high-yield accounts are still a smart move. The best high-yield savings accounts still pay way more than traditional accounts — up to 10 times higher than the 0.40% national savings average.
Several banks stand out in today's competitive HYSA marketplace. Bread Financial offers an attractive high-yield account with just a $100 minimum deposit, making it accessible for almost anyone getting started. CIT Bank's Platinum Savings also provides strong yields, though you'll need at least $5,000 to qualify. Valley Bank appeals to new customers with competitive rates and a reasonable $1,000 minimum.
SoFi combines high rates with a streamlined checking account and debit card. For those who prefer established names, Barclays offers a tiered savings structure that adjusts your earnings based on your balance.
Here's how these HYSAs compare to a traditional account like Chase Savings, which offers 0.01% APY — the lowest interest rate on the market.
$10,000 in Bread Financial High-Yield Savings (4.20% APY)
$10,000 in SoFi Savings (3.80% APY)
$10,000 in Chase Savings (0.01% APY)
After 1 year
$420
$380
$1
After 3 years
$1,314
$1,184
$3
After 5 years
$2,284
$2,050
$5
How traditional savings accounts react to Fed decisions
While HYSAs often respond quickly to Fed rate changes, you won't see much of a difference on money you keep in a traditional account. Banks typically keep everyday savings rates low regardless of what happens with the Fed rate.
For instance, Chase kept its basic savings account at 0.01% APY even after significant Fed rate increases. That's why it's smart to park the bulk of your cash savings in an HYSA to earn higher passive interest income. Just make sure it also offers easy access to your money without charging monthly maintenance or other fees.
🔍 Learn more: How the Fed rate affects your savings and what to expect from every bank account type
2. Certificates of deposit (CDs)
CD rates typically follow the Fed's lead but with an important twist. While new CDs adjust quickly after Fed changes, existing CDs are locked in until they mature — preserving today's higher rates like a time capsule.
That's why locking in CD rates remains one of the best ways to prepare for upcoming Fed rate cuts. If you're worried about tying up your money, consider building a CD ladder to lock in today's highest rates across several maturity dates for more regular access to your money.
How do banks adjust interest rates on existing CDs?
Once you open a CD, your banks lock in your rate for the life of your term. If you'd locked in a 4.00% APY two-year CD in October 2025, you'd earn that same 4.00% until October 2027, regardless of Fed decisions in the meantime.
CD options vary widely across banks, credit unions and other financial institutions. For example, Bread Financial offers competitive rates on various terms for savers looking to ladder their CDs, while Valley Bank targets larger deposits with premium rates. Alliant Credit Union balances term lengths with solid yields. Discover Bank and Barclays provide flexible terms for different goals. CIT Bank's no-penalty lets you withdraw funds early without fees.
When your CD reaches maturity — or expires — you have two main options:
You can cash out your CD. This means withdrawing your money once it matures, moving it to a linked savings or checking account.
You can automatically renew your CD. This means carrying over your CD funds to a new CD with the same term. You won't always get the same rate as your previous CD — instead, your bank will assign the market's current APY to your new CD.
🔍 Learn more: Here's why you need to invest in a CD today, from a finance expert
What happens if you withdraw money from a CD before it matures?
Most banks charge an early withdrawal penalty if you take your money out of a CD before it matures. This fee is typically a portion of the interest you earned — for instance, 90 days' worth of interest on a 12-month CD. Unlike a savings account, withdrawing money from your CD means "breaking it," or closing it and cashing out its entire balance.
Banks often tie early withdrawal penalties to CD terms.
Term
Typical early withdrawal penalty
Short-term CDs — 3 to 12 months
3 to 6 months of interest
Medium-term CDs — 1 to 3 years
6 to 12 months of interest
Long-term CDs — 3 years or longer
12 to 18 months of interest
Keep in mind that some banks may dip into your original CD deposit if you haven't earned enough interest to cover the penalty. That said, no-penalty CDs won't charge a fee for early withdrawal, allowing you to cash out before maturity without worrying about associated costs.
🔍 Learn more: When is it worth it to break a CD?
3. Fixed and adjustable mortgage rates
Mortgage rates can be among the winners of Fed rate cuts as they tend to follow the Fed funds rate's direction, though not in perfect sync. Unlike deposit accounts, mortgage rates aren't as closely tied to the Fed rate, though they're influenced by the same economic factors that go into the Fed's decisions.
Changes to mortgage rates shape your monthly payments. As an example, here's how your monthly payments and total interest costs compare on a $400,000, 30-year fixed-rate mortgage at different interest rates:
Interest rate
Monthly payments
Total interest charges
Monthly savings
8.00%
$3,503
$656,619
7.00%
$3,230
$558,036
$273
6.00%
$2,967
$463,354
$536
🔍 Learn more: Why a 1% mortgage rate change matters more than you think
How soon do mortgage rates change after a Fed decision?
Mortgage rate movements aren't as predictable as HYSA or CD rate changes. That's because mortgages are affected by factors beyond those that influence the Fed rate, including supply and demand, inflation, economic outlook and more.
Let's look at how mortgage rates moved when the Federal Reserve increased its benchmark in the first half of 2023 to combat inflation.
30-year fixed-rate mortgage average in the U.S.
Date
Target Fed funds rate
30-year average fixed rate
February 2, 2023
4.25% to 4.50%
6.09%
March 2, 2023
4.50% to 4.75%
6.65%
April 6, 2023
4.75% to 5.00%
6.28%
May 4, 2023
5.00% to 5.25%
6.39%
June 1, 2023
5.00% to 5.25%
6.79%
Source: Federal Reserve
In that same period, the average fixed rate for a 30-year mortgage trended higher, but not without dipping every now and then.
That's why while decisions from the Fed can influence mortgage rates, it's important to remember that other factors also play a role to avoid rate-watching paralysis. Keep an eye on overall market trends, but don't let them stop you from making a move on your dream home or securing a great refinancing deal.
What happens to existing mortgages when the Fed changes rates?
If you're already a homeowner with a fixed-rate mortgage, you can breathe easy. Just like CDs, your rate is locked in for the term of your loan, so Fed rate movements won't affect your monthly payments. That means that if you snagged a 3.00% 30-year fixed mortgage in 2020, you get to keep this rate until 2050 — or until you sell or refinance — regardless of Fed rate changes.
However, if you have an adjustable-rate mortgage (ARM), you'll want to pay close attention to how the Fed moves. ARMs typically adjust annually after an initial fixed-interest period. Every Fed rate cut opens the door to lower interest charges and monthly payments.
🔍 Learn more: How the Federal Reserve affects mortgage rates (Hint: It may not be how you think)
4. Investments and stock portfolios
The stock market and the Federal Reserve's funds rate decisions share a complex relationship. When the Fed adjusts its federal funds rate, it sets off a domino effect that spreads through the stock market. Fed rate changes affect corporate borrowing costs and profits, shifting how attractive stocks are compared to other investments like bonds.
How do Fed rate changes affect the stock market?
Stocks often move inversely to Fed rate adjustments. When the Fed cuts rates, stocks typically rise since companies can borrow money cheaper and boost their profits. Lower rates also make bonds less appealing, pushing more investors toward stocks.
Rate hikes work in reverse. Higher borrowing costs squeeze company profits while making bonds more attractive with their guaranteed returns and zero volatility.
Navigating these market shifts becomes easier with the right investment platform. Popular options like Robinhood offer zero-commission trades and an intuitive interface, while SoFi Invest combines self-directed and automated investing capabilities with broader banking services for a more unified financial approach.
Acorns simplifies investing by automatically rounding up everyday purchases and investing the difference, and Public offers social features that let you follow other investors and participate in investment discussions.
🔍 Learn more: 7 best investing platforms: Low-cost options to put your money to work
Should you reshuffle your stock portfolio when the Fed makes a move?
When rates change, you might want to completely reshuffle your portfolio. But drastic moves based on economic news often backfire since you end up tying your performance to one specific moment. You may also trigger short-term capital gains taxes if you sell investments held less than a year.
Dollar-cost averaging works better than trying to time Fed moves. You invest a fixed amount regularly regardless of rates or prices. Put in $500 monthly, and when markets rise, you buy fewer shares. When they fall, you buy more. Your investment amount stays constant, smoothing out volatility over time and improving long-term performance without the guesswork.
🔍 Learn more: Best low-risk investments for retirees
5. Credit card APRs
Annual percentage rates (APRs) determine how much it costs you to carry a balance on your credit card. Card issuers tie their APR rates to the prime lending rate, which typically sits at about 3.00% higher than the Fed funds rate. For instance, the prime rate gradually dropped from a historic high of 8.50% in July 2023 to 7.25% in September 2025 as the Fed cut its benchmark funds rate.
How soon do credit card APRs change after a Fed rate decision?
Most credit cards come with variable APRs that move right along with the federal funds rate. When the Fed increases this benchmark, credit card APRs follow suit within one or two billing cycles. This movement can quickly raise interest charges on your existing credit card debt.
The same is true when the Fed cuts the benchmark: You should see lower interest charges on any balance you carry over monthly within one or two billing cycles.
How to tackle existing credit card debt after Fed rate changes
Credit card debt will cost you more than most other types of debt, regardless of where the Fed funds rate sits. While Fed rate cuts can lower your interest charges, you're nearly always better off moving high-interest card debt to a credit card that offers a 0% introductory APR on balance transfers.
To give yourself enough time to pay down your debt, look for credit cards that offer a 0% intro APR for 12 months or longer. For example, the Wells Fargo Reflect Card comes with a 0% intro APR on qualifying balance transfers for 21 months, after which it reverts to a higher variable APR. This long intro period helps you avoid interest charges for quite a while and can save you a lot of money in the process.
🔍 Learn more: 4 simple steps to pay off your credit card debt
3 factors that influence Fed rate decisions
The Federal Reserve sets the outlook of the country's economy, evaluating various economic factors and market conditions at eight policy meetings each year.
Three key factors it considers are:
Inflation rates. An important part of the Fed's focus is getting inflation as close to an average 2% as possible, and its primary tool for fighting inflation is adjusting the Fed funds rate. When inflation heats up, the Fed may respond by raising rates to slow it down. When inflation eases, the Fed lowers rates to encourage economic growth.
Employment data. A healthy job market reflects a strong economy, and the Fed closely watches unemployment rates and new job data to time its rate changes and avoid inducing a recession.
Overall economic growth. While many indicators focus on certain sectors of the economy, the Federal Reserve also looks at the overall growth of the U.S. economy. The Fed may lower rates during sluggish growth to promote more economic activity. On the other hand, it may increase rates during rapid economic growth to reduce the risk of inflation.
The Fed also keeps an eye on the housing market, future economic projections and global developments among other factors when deciding whether to lower or increase the benchmark interest rate.
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FAQs: Fed rates and your money
Here are answers to key questions about how Fed decisions impact your personal finances. You can also learn more in our growing personal finance library to save money, earn money and build your wealth.
Do I need to pay taxes on my high-yield savings and CD interest earnings?
Yes. Any interest you earn from savings accounts and CDs counts as income on your tax return. Your bank will send you a 1099-INT form if you earned $10 or more in interest during the year, but you need to report all interest earnings regardless of the amount. You can use one of the best tax software to prepare your taxes yourself or have someone help you file them. Several options, including FreeTaxUSA, H&R Block and TurboTax, offer free services for simple tax situations and premium services that vary in price based on whether you invest, run a business, have an estate and more.
Should I change my investment strategy when the Fed cuts rates?
Stay focused on your long-term goals rather than making big portfolio changes based on Fed moves. A steady approach like dollar-cost averaging where you invest a fixed amount each month helps smooth out market ups and downs, while reactive trading often leads to buying high and selling low. Robo-advisors are investment platforms that automate this investment process for you, allowing you to essentially set it and forget it. Learn more in our guide to investing versus savings.
What happens to gold when the Fed cuts rates?
While lower rates can weaken the dollar and make gold more appealing than interest-bearing accounts, many other factors influence gold prices — including global events, market sentiment and supply and demand. Looking at historical data, gold sometimes moves in the opposite direction you might expect based on rate changes alone. That's why you shouldn't base your investment decisions on this single factor. Instead, work with a certified financial advisor to map your existing assets and plan your investment strategy. And learn more in our guide on the pros and cons of gold.
Editorial disclaimer: Information on this page is for educational purposes and not investment advice or a recommendation to buy any specific asset or adopt any particular investment strategy. Independently research products and strategies before making any investment decision.
About the writer
Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia's expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.
Article edited by Kelly Suzan Waggoner
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