NEW YORK (AP) — In a significant move, the Federal Reserve lowered its benchmark interest rate by a quarter of a percentage point on Wednesday. This marks the third rate reduction since September, bringing the key rate down to approximately 3.6%, the lowest it has been in nearly three years. Prior to September, the Fed had maintained the same rate for nine months without any cuts.

The benchmark rate plays a crucial role as it determines the cost for banks to borrow and lend among themselves. The Federal Reserve adjusts this rate with dual objectives in mind: controlling inflation and striving for full employment. Moreover, this rate influences the interest costs consumers face when borrowing through credit cards, auto loans, mortgages, and a host of other financial services.

In normal circumstances, the Federal Reserve might raise the benchmark rate to curb inflation, or lower it to spur economic growth and increase hiring. Currently, the Fed faces a challenging situation: inflation is persisting above its target of 2%, while the job market shows signs of slowing. Additionally, the recent government shutdown has disrupted the timely collection and release of economic data, complicating the Fed’s task of tracking the economy’s health accurately.

Here’s what this means for consumers: those with savings will likely see a continued decline in the appealing yields offered by certificates of deposit (CDs) and high-yield savings accounts, as falling interest rates diminish returns.

Interest on savings accounts will continue to decline

For savers, falling interest rates will continue to erode attractive yields currently on offer with certificates of deposit (CDs) and high-yield savings accounts.

Three of the big five banks (Ally, American Express, and Synchrony) cut their savings account rates since the last Fed rate cut in October, according to Ken Tumin, founder of DepositAccounts.com. The top rates for high yield savings accounts right now remain around 4.35% to 4.6%.

Those are still better than the trends of recent years, and a good option for consumers who want to earn a return on money they may want to access in the near-term. A high yield savings account generally has a much higher annual percentage yield than a traditional savings account. The national average for traditional savings accounts is currently 0.61%, according to Bankrate.

A cut will impact mortgages gradually

For prospective homebuyers, the market has already priced in the rate cut, meaning mortgage rates continue to hover around the lowest levels in more than a year.

Mortgage rates are also influenced by bond market investors’ expectations for the economy and inflation. They generally follow the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

“While there’s no guarantee that the Fed’s move will push mortgage rates lower, there’s reason to be optimistic that homebuyers could see rates below 6.00% in the next year, even if only briefly,” according to Matt Schulz, chief consumer finance analyst at LendingTree. “That would likely spur more Americans to refinance their current high-rate mortgages and possibly even to consider shopping for a new home.”

Credit card rate relief could be slow

Interest rates for credit cards are currently at an average of 19.80%, down from a record-high 20.79% set in August 2024, but still historically high. The Fed’s rate cut may be slow to be felt by anyone carrying a large amount of credit card debt. That said, any reduction is positive news.

“The reductions could mean hundreds of dollars in savings for debtors,” according to LendingTree’s Schulz.

While the decrease is incremental, improved affordability could also help stabilize delinquency trends, according to Michele Raneri, vice president of U.S. research at credit reporting bureau TransUnion.

“Lower borrowing costs can begin to ease household budgets, providing relief from inflationary pressures and reducing financial stress,” she said.

Still, the best thing for anyone carrying a large credit card balance is to prioritize paying down high-interest-rate debt, and to seek to transfer any amounts possible to lower APR cards or negotiate directly with credit card companies for accommodation.

Raneri added that the current economic environment continues to be defined by “persistent affordability challenges.”

Auto loans are not expected to decline soon

Americans have faced steeper auto loan rates over the last three years after the Fed raised its benchmark interest rate starting in early 2022. Those are not expected to decline anytime soon. While a cut will contribute to eventual relief, it might be slow in arriving, analysts say.

And more borrowers are falling behind on car payments, a sign of economic distress. In October, 6.65% of subprime borrowers were at least 60 days late on their payments, according to Fitch Ratings, the highest delinquency rate on record, since record-keeping began in the early 1990s. The costs of both new and used vehicles remain high, according to Bankrate, which may be in part due to a shortage of used cars.

Generally speaking, an auto loan annual percentage rate can run from about 4% to 30%, depending on the borrower’s credit score. Bankrate’s most recent weekly survey found that average auto loan interest rates are currently at 7.05% on a 60-month new car loan.

The cut signals the Fed cares about the labor market

If you’re a job-seeker right now, the Fed rate cut is good news, since cheaper borrowing for businesses could help them invest in additional employees to grow their business.

“Overall, we’ve seen a slowing demand for workers with employers not hiring the way they did a couple of years ago,” said Cory Stahle, senior economist at the Indeed Hiring Lab. “By lowering the interest rate, you make it a little more financially reasonable for employers to hire additional people. Especially in some areas – like startups, where companies lean pretty heavily on borrowed money – that’s the hope here.”

Stahle acknowledged that it could take time for the rate cuts to filter down to employers and then to workers, but he said the signal of the reduction is also important.

“Beyond the size of the cut, it tells employers and job-seekers something about the Federal Reserve’s priorities and focus. That they’re concerned about the labor market and willing to step in and support the labor market. It’s an assurance of the reserve’s priorities.”