{"id":2916,"date":"2025-09-22T04:51:50","date_gmt":"2025-09-22T04:51:50","guid":{"rendered":"https:\/\/ft365.org\/index.php\/2025\/09\/22\/6-ways-the-feds-interest-rate-decisions-impact-your-money-bankrate\/"},"modified":"2025-09-22T04:51:50","modified_gmt":"2025-09-22T04:51:50","slug":"6-ways-the-feds-interest-rate-decisions-impact-your-money-bankrate","status":"publish","type":"post","link":"http:\/\/ft365.org\/index.php\/2025\/09\/22\/6-ways-the-feds-interest-rate-decisions-impact-your-money-bankrate\/","title":{"rendered":"6 Ways The Fed’s Interest Rate Decisions Impact Your Money | Bankrate"},"content":{"rendered":"
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Key takeaways<\/span> <\/span> <\/h2>\n
    \n
  • The Federal Reserve\u2019s interest-rate decisions have a wide-ranging influence on your personal finances, affecting more than just your financing costs but also your job security and purchasing power. <\/li>\n
  • When the Fed\u2019s key interest rate falls (or rises), the borrowing costs you pay also follow suit, influencing the cost of financing purchases with credit cards, car loans, personal loans and more. <\/li>\n
  • For the first time since December, the Fed is expected to cut interest rates to protect the job market from weakening further. Officials, however, are still concerned about how tariffs could impact inflation. <\/li>\n<\/ul><\/div>\n

    Have you struggled to find a new job over the past few years? Did you job hop during the \u201cGreat Resignation\u201d of workers in 2021?Did you buy a home when mortgage rates were at record lows in 2020? Did you job hop during the \u201cGreat Resignation\u201d of workers in 2021? Have you been holding off on making a big-ticket purchase until you can find a cheaper deal and lower interest rate?<\/p>\n

    Believe it or not, those money moves \u2014 big and small \u2013\u00a0might be linked to what\u2019s happening at the world\u2019s most powerful central bank: the Federal Reserve.<\/p>\n

    \n

    Your job security, your portfolio, your debts and the direction of the economy are all subject to the Fed\u2019s influence. As that price of money changes, it ripples out in a lot of different directions.<\/q> \u2014 Greg McBride, CFA, Bankrate chief financial analyst <\/cite> <\/p><\/blockquote><\/div>\n

    What does the Federal Reserve do?<\/h2>\n

    The Federal Reserve is the central bank of the U.S., best known as the orchestrator of the world\u2019s largest economy. The Fed has two main economic goals \u2014 price stability and maximum employment \u2014 and it uses interest rates as its main lever to accomplish those outcomes.<\/p>\n

    The Fed\u2019s rate-setting arm \u2014 the Federal Open Market Committee (FOMC) \u2014 (typically) meets eight times a year to either raise, lower or maintain a key benchmark interest rate that ripples through the entire economy: the federal funds rate.<\/p>\n

    How does the Federal Reserve impact me?<\/h2>\n

    Put simply, the Fed\u2019s interest rate decisions have a domino effect on almost all forms of borrowing. When rates fall (or rise), so, too, do borrowing costs on auto loans, credit cards, home equity lines of credit (HELOCs) and more. You may also see banks adjust the yields that they were previously offering on key products like savings accounts or certificates of deposit (CDs).<\/p>\n

    But the Fed\u2019s decisions have other knock-on effects. For starters, cheaper borrowing costs can incentivize businesses to hire new workers or invest in new initiatives. Expensive rates, however, can cause both businesses and consumers to pull back on big-ticket purchases or hiring \u2014 worsening the job market.<\/p>\n

    The Fed lifted interest rates to a 23-year high throughout 2022 and 2023 to combat rapid, post-pandemic inflation. Then, a downturn in hiring in 2024 prompted them to cut interest rates a full percentage point. Officials have been on the sidelines so far in 2025, but they are widely expected to cut interest rates again at their next gathering in September as unemployment rises to the highest level since 2021.<\/p>\n

    1. The Fed\u2019s decisions influence your borrowing costs<\/h2>\n

    When the Fed\u2019s rate goes up (or down), the interest rates that you pay move in lockstep. That\u2019s because the Fed\u2019s key borrowing rate benchmark acts as a lever for other popular loan benchmarks, such as the prime rate and the Secured Overnight Financing Rate, or SOFR.<\/p>\n

    Sometimes, rates even fall (or rise) on the mere expectation that the Fed is going to adjust rates.<\/p>\n

    If you want to see the Fed\u2019s policies in action, here\u2019s how much more expensive it\u2019s become to finance various big-ticket items since the days when rates were holding at near-zero during the coronavirus pandemic:<\/p>\n

    \n\n\n\n\n\n\n\n\n\n\n\n
    Product<\/th>\nWeek ending July 21, 2021<\/th>\nWeek ending Sept. 10, 2025<\/th>\nChange<\/th>\n<\/tr>\n<\/thead>\n
    $30K home equity line of credit (HELOC)<\/td>\n4.24 percent<\/td>\n8.10 percent<\/td>\n+3.86 percentage points<\/td>\n<\/tr>\n
    Home equity loans<\/td>\n5.33 percent<\/td>\n8.23 percent<\/td>\n+2.9 percentage points<\/td>\n<\/tr>\n
    Credit card<\/td>\n16.16 percent<\/td>\n20.12 percent<\/td>\n+3.96 percentage points<\/td>\n<\/tr>\n
    Four-year used car loan<\/td>\n4.8 percent<\/td>\n7.64 percent<\/td>\n+2.84 percentage points<\/td>\n<\/tr>\n
    Five-year new car loan<\/td>\n4.18 percent<\/td>\n7.19 percent<\/td>\n+3.01 percentage points<\/td>\n<\/tr>\n<\/tbody>\n
    Source: Bankrate national survey data<\/td>\n<\/tr>\n<\/tfoot>\n<\/table>\n<\/div>\n

    After a rate cut from the Fed, borrowers often see lower rates within one to two billing cycles \u2014 but only if they have a variable-rate loan. Consumers who locked in a loan with a fixed interest rate won\u2019t feel any impact when the Fed raises rates.<\/p>\n

    Meanwhile, lenders will often adjust interest rates by a wider or smaller margin than the Fed\u2019s benchmark interest rate depending on a variety of other factors \u2014 such as borrowers\u2019 credit history or competition in the market.<\/p>\n

    \u201cBanks are not required to line up their interest rates with the Fed\u2019s rate,\u201d said Liz Ewing, chief financial officer at Sapient Capital. \u201cEach bank will respond to the Fed\u2019s rate announcement and adjust rates in their own way.\u201d<\/p>\n

    Mortgage rates don\u2019t always follow the Fed<\/h3>\n

    Mortgage rates are the main exception. The 30-year fixed-rate mainly tracks the 10-year Treasury yield, rather than the fed funds rate. Both benchmarks are guided by the same macroeconomic forces, but at its most basic level, Treasury yields rise and fall due to investors\u2019 expectations for inflation and economic growth, along with the public\u2019s appetite for borrowing from the government.<\/p>\n

    Mortgage rates fell to the lowest level in nearly 11 months in the week that ended on Sept. 10, when a key report showed that the U.S. economy added just 22,000 jobs in August. But both Treasury yields \u2014 and consequently, mortgage rates \u2014 are still higher than they were at this time last year, even though the Fed has cut interest rates a full percentage point, as the Trump administration pushes tariffs and massive tax cuts.<\/p>\n

    \n\n\n\n\n\n
    Low<\/th>\nHigh<\/th>\nCurrent level<\/th>\nChange<\/th>\n<\/tr>\n<\/thead>\n
    2.93 percent (Jan. 27, 2021)<\/td>\n8.01 percent (Oct. 25, 2023)<\/td>\n6.38 percent (Sept. 10, 2025)<\/td>\n+3.45 percentage points from all-time low, -1.63 percentage point from peak<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

    \u201cConcerns about escalating government debt have been the primary factor keeping bond yields and mortgage rates at these elevated levels,\u201d McBride said.<\/p>\n

    2. Savings accounts and CDs mimic the Fed but will fall before the Fed cuts<\/strong> <\/h2>\n

    The Fed\u2019s moves have a similar effect on the returns you earn on your savings. The Fed\u2019s rapid rate hikes to control post-pandemic inflation helped lift yields on savings accounts and certificates of deposit (CDs) to the highest yields in over a decade. On the flip side, yields edge lower each time the Fed cuts rates.<\/p>\n

      \n
    • Highest-yielding 5-year CD<\/strong>: 3.9% (peak: 4.85%)<\/li>\n
    • Highest-yielding 1-year CD:<\/strong> 4.2% (peak: 5.75%)<\/li>\n
    • Highest-yielding savings account:<\/strong> 4.35% (peak: 5.55%)<\/li>\n<\/ul>\n

      Those rate cuts, however, haven\u2019t changed what\u2019s most important to savers: Yields are continuing to top inflation. As of June, prices have increased 2.9 percent, according to the latest data from the Bureau of Labor Statistics.<\/p>\n

      The nation\u2019s biggest banks as well as traditional brick-and-mortar banks have barely boosted their offerings for savers since the Fed started raising interest rates. The national average savings yield is 0.48 percent, after holding around 0.06 percent during the pandemic, according to national Bankrate data.<\/p>\n

      Online banks are able to offer more competitive interest rates because they don\u2019t have to fund the overhead costs that depository institutions with physical branches have.<\/p>\n

      3. With rates still high, it can be harder for borrowers to get approved for new loans<\/h2>\n

      One reason higher interest rates slow demand: They make it harder for households to obtain credit. Nearly half of applicants (48 percent) were denied a loan or financial product between December 2023 and December 2024, as interest rates stayed historically elevated, according to recent Bankrate polling.\u00a0<\/p>\n

      The phenomenon reflects a key feature that\u2019s likely to remain, even as the Fed cuts rates: lenders sometimes grow pickier about who they lend money to, out of fear that they may not be paid back. Interest rates may climb even faster for borrowers perceived to be riskier. Financial firms may also fear that the risk of default is higher because monthly payments effectively become costlier when interest rates are high.<\/p>\n

      \n

      Federal Reserve Icon<\/title> <\/svg> <\/p>\n
      \n

      Financing costs and the Federal Reserve <\/p>\n

      A $500,000 mortgage would\u2019ve cost you $2,089 a month in principal and interest when rates were at a record low of 2.93%, according to an analysis using Bankrate\u2019s national survey data. With the 30-year fixed-rate mortgage now averaging 6.9%, that same payment would now cost $3,121 a month, a 49% increase. <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

      It also does some of the Fed\u2019s work for it. Consequently, less access to credit leads to less spending \u2014 weighing on demand and taking some of the steam away from inflation.<\/p>\n

      \u201cTighter credit hits borrowers with less-than-stellar credit ratings the hardest \u2013 whether the borrower is a consumer, corporation, municipality or a national government,\u201d McBride said. \u201cThe business of lending doesn\u2019t stop but is instead more intensely focused on borrowers posing the least risk of default.\u201d<\/p>\n

      4. The Fed\u2019s rate decisions influence the stock market \u2014 meaning your portfolio or retirement accounts<\/h2>\n

      Markets have been known to choke on the prospect of higher rates. Part of that is by design: Many investors reshuffle their portfolios away from stocks and instead toward traditional safe-haven investments \u2014 such as bonds or CDs \u2014 as yields rise. Those moves drain excess liquidity from the stock market.<\/p>\n

      It\u2019s also because of worries. When rates rise, market participants often become concerned that the Fed could get too aggressive, slowing down growth too much and perhaps tipping the economy into a recession. Those concerns battered stocks in 2022, with the S&P 500 posting the worst performance since 2008 in the year.<\/p>\n

      On the other hand, cheaper borrowing rates often bode well for investments because they incentivize risk-taking among investors trying to compensate for lackluster returns from bonds, fixed income and CDs. Investors who\u2019ve been worried about an economic slowdown may also find rate cuts to be a relief.<\/p>\n

      \n

      Keep a long-term mindset <\/p>\n

      When markets are in the red, it\u2019s important to avoid any knee-jerk reactions and continue regularly contributing to your retirement accounts. Falling stock prices create tremendous buying opportunities for Americans hoping to bolster their portfolio of long-term investments. Stocks can also quickly reverse their declines.<\/p>\n<\/p><\/div>\n

      Investors, however,\u00a0should draw upon the same principles that got them through\u00a0the period of volatility last spring\u00a0before reacting to any future downturns in the stock market, McBride said.\u00a0<\/p>\n

      \u201cThe market flirting with bear market territory in April only to stage a 20 percent rebound in the ensuing eight weeks,\u201d McBride said. \u201cThat was a surge no one predicted. But if you bailed during the sharp April downdraft, you missed the rebound.\u201d<\/p>\n

      5. The Fed has a major influence on your purchasing power<\/h2>\n

      The Fed\u2019s interest rate decisions are bigger than just influencing the price you pay to borrow money and the amount you\u2019re paid to save. All of those factors also have a prevalent influence on your purchasing power as a consumer.<\/p>\n

      Low interest rates intended to stimulate the economy and juice up the job market can fuel demand so much that supply can\u2019t keep up \u2014 exactly what happened in the aftermath of the coronavirus pandemic. All of that can lead to inflation.<\/p>\n

      High interest rates, meanwhile, are designed to weigh on inflation. Americans may decide to delay a purchase or investment that requires financing, weighing on consumer spending. <\/p>\n

      They can also lead to joblessness if the economy slows too much. Without a paycheck, consumers have the least amount of buying power at all.<\/p>\n

      The Fed is the country\u2019s No. 1 inflation fighter because its tools are seen as the most effective.<\/p>\n

      6. The Fed influences how secure you feel in your job or how easy it is to find a job<\/h2>\n

      One of the biggest corners of the economy impacted by higher interest rates is the job market. Expansions that seemed wise when money was cheap might be put on the backburner. New opportunities made possible by low interest rates are no longer on the table.<\/p>\n

      The job market has clearly cooled since the Fed started raising interest rates \u2014 and kept them there. The nation\u2019s joblessness rate has now held above 4 percent since May 2024, recently hitting 4.3 percent in August, the highest since 2021, Labor Department data shows.<\/p>\n

      Employers created just 88,000 jobs between the months of June and August, after adding 246,000 jobs in the same period a year ago. Meanwhile, companies are also dwindling their hiring plans. For the first time since the coronavirus pandemic, there were more unemployed workers than job openings, Labor Department data shows.<\/p>\n

      More than 2 in 3 workers (69 percent) are worried about their job security, with 27 percent more worried today than they were at the start of the year, according to Bankrate\u2019s Worker Intentions Survey from July.<\/p>\n

      Layoffs are still historically low, but some industries have been tougher for jobseekers than others. Big tech firms including Meta, Amazon and Lyft laid off thousands of workers since the Fed started raising rates. That\u2019s happening as federal layoffs and uncertainty about the Trump administration\u2019s tariff policies put another damper on the labor market. Job cuts in 2025 are the highest since 2009 when excluding the 2020 coronavirus pandemic, led by layoffs in government, according to data from outplacement firm Challenger, Gray & Christmas. Job cuts, however, might now be spreading to the construction and manufacturing sector, the latest employment report showed.<\/p>\n

      What to do when interest rates change<\/h2>\n

      Raising interest rates is a blunt instrument with no method of fine-tuning specific corners of the economy. It simply works by slowing demand overall \u2014 but the risk is that the U.S. central bank could do too much. Put in the mix that officials are trying to judge how rates impact the economy with backward-looking data, and the picture looks even darker.<\/p>\n

      While the odds of a soft-landing have looked promising, eight of the Fed\u2019s past nine tightening cycles have ended in a recession, according to an analysis from Roberto Perli, former head of global policy at Piper Sandler who now helps manage the U.S. central bank\u2019s open-market operations at the New York Fed.<\/p>\n

      If the Fed cuts rates in September, borrowing costs will only return back to levels last seen in 2022, which at the time was the highest since 2007, according to a Bankrate analysis.<\/p>\n

      A high-rate and uncertain economic environment makes prudent financial steps all the more important, especially having ample cash you can turn to in an emergency.<\/p>\n

      Boosting your credit score and paying off high-cost debt can also create more breathing room in your budget in a higher-rate environment. Use Bankrate\u2019s tools to find the best auto loan or mortgage for you, and shop for the best savings account to park your cash.<\/p>\n

      \u201cWhile the idea of interest rates coming down is appealing to many consumers and businesses, the reason for lower interest rates is very important,\u201d McBride said. \u201cWe want interest rates to decline because inflation declines, not because of economic weakness.\u201d<\/p>\n

      \n
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      Key takeaways The Federal Reserve\u2019s interest-rate decisions have a wide-ranging influence on your personal finances, affecting more than just your financing costs but also your job security and purchasing power. When the Fed\u2019s key interest rate falls (or rises), the borrowing costs you pay also follow suit, influencing the cost of financing purchases with credit<\/p>\n","protected":false},"author":2,"featured_media":205,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-2916","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-news"],"featured_image_urls":{"full":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you.jpg",1280,720,false],"thumbnail":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-150x150.jpg",150,150,true],"medium":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-300x169.jpg",300,169,true],"medium_large":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-768x432.jpg",640,360,true],"large":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-1024x576.jpg",640,360,true],"1536x1536":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you.jpg",1280,720,false],"2048x2048":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you.jpg",1280,720,false],"morenews-featured":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-1024x576.jpg",1024,576,true],"morenews-large":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-825x575.jpg",825,575,true],"morenews-medium":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-590x410.jpg",590,410,true],"crawlomatic_preview_image":["http:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/localimages\/Banking_5-ways-the-Fed-impacts-you-260x146.jpg",260,146,true]},"author_info":{"display_name":"henry","author_link":"http:\/\/ft365.org\/index.php\/author\/henry\/"},"category_info":"Latest News<\/a>","tag_info":"Latest News","comment_count":"0","_links":{"self":[{"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/posts\/2916","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/comments?post=2916"}],"version-history":[{"count":0,"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/posts\/2916\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/media\/205"}],"wp:attachment":[{"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/media?parent=2916"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/categories?post=2916"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/tags?post=2916"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}