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The Federal Reserve cut its key interest rate by a quarter percentage point Thursday, as widely expected.
The policy-setting Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate to 4.50%-4.75% from 4.75%-5.00%.
This change comes on the heels of a larger half-point rate reduction in September. For savers, the drop in rates means diminished returns on deposit accounts.
“Since the cut isn’t huge, the returns won’t go from awesome to awful overnight, but they will go down,” says Matt Schulz, chief credit analyst at LendingTree.
The cut of a quarter point (25 basis points) comes in response to cooling inflation, which eased to 2.4% in September, just above the Fed’s 2% target. Inflation had been hovering at about 3% since January.
Rate cuts are expected to continue through 2025, although the reelection of Donald Trump as president raises economic uncertainty.
What does this mean for my money?
What is a basis point?
A basis point is a common unit of measure for interest rates in finance — and the smallest. One basis point equals one one-hundredth of 1 percentage point, which is also expressed as 0.01% or 0.0001. One hundred basis points equal 1%. When the Fed changes the federal funds target rate, any increase or decrease is usually expressed in basis points. A rate increase of 75 basis points, for example, is equal to an increase of 0.75%, or three-quarters of a percentage point.
Lower interest rates mean that the return on deposit products, such as savings accounts, money market accounts and certificates of deposit (CDs), can likely decrease.
With further rate cuts expected, now may be the time to take advantage of the best options for growing your money.
“It is highly unlikely that the Fed will be done with rate-cutting after the November cut,” Schulz says. “That makes it really important for those who have been considering buying CDs or shifting to high-yield savings accounts to do so sooner rather than later.”
Although you have missed peak rates, the move to a high-yield savings account (HYSA) is still worth it, he says.
“Even an HYSA with a lower rate than it had a couple of months ago is still likely giving better returns than you’d find from traditional savings accounts at a megabank,” Schulz says.
Will Trump’s election victory affect rate cuts?
Trump’s return to the White House probably doesn’t change anything in the short term, according to Schulz, who says he’d “be surprised if the Fed altered its course between now and Inauguration Day.”
But profound change could be on the horizon.
“Trump has previously talked about the potential need for the president to be involved in making monetary policy,” Schulz says. “It is unclear if he would pursue that further, but if he does, and the Fed ceases to be an independent entity, it could have major ramifications for rates going forward.”
When is the next Fed meeting in 2024?
The FOMC is slated to meet one last time in 2024 — Dec. 17-18 — to consider its next interest rate moves.