Interest rates just dropped — how does that impact you?
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You're listening to Life Kit from NPR. Hey, everybody. It's Marielle. The Federal Reserve, the U.S.'s central bank, just cut interest rates by half a percent. That will have an effect on interest rates throughout the economy, making it cheaper to borrow money and a little less lucrative to put your money in a savings account.

We're working on an episode that'll come out soon about how and when to refinance a mortgage. Like, is this rate cut a good time? That'll be an interview with NPR personal finance correspondent Laurel Wamsley. In the meantime, though, Laurel talked to NPR's Mary Louise Kelly this Wednesday about the many ways this rate cut could affect you financially. Here's that conversation.

We are joined now by NPR's Laurel Wamsley. She covers personal finance. Hey, Laurel. Hey, Marie-Louise. Hey. Okay. So for most people, the number one big purchase they're ever going to make is a home. And a lot of people have not been able to do that lately. What does today's rate cut possibly mean for them?

Well, the good news for homebuyers is that mortgage rates already dropped in anticipation of the Fed's cut today. They've fallen a full point from where they were just in May. And they could drop a little bit more, though they're not expected to drop much more just now. They'll probably move a little bit lower into next year, though, as the Fed keeps cutting rates. So these lower mortgage rates mean more buying power for homebuyers. A one-point difference in a mortgage rate can mean saving hundreds of dollars a month.

But this is important. Lower mortgage rates aren't going to bring down the sky-high housing prices that we see. That's because the lower rates are expected to bring more home buyers into the market, and that demand could make home prices go even higher.

It's because the underlying issue is that the U.S. is millions of housing units short, and today's rate cut should spur some more home building, which is good, but it's not really going to solve those affordability problems. Got it. Okay, for the lucky people who do already own homes, should they be starting to think about refinancing? Well, this will mostly affect the people who bought homes in the last couple of years when they were high interest rates. That got close to 8%. So we're now in the zone where it might make sense for those folks to refinance since rates have dropped so significantly.

But 60% of the mortgages in the U.S. right now are at rates below 4%. So this doesn't change too much for the bulk of homeowners, except that perhaps they'll feel slightly less locked in place as these rates come down. These rates could spur some of those people to go ahead and move and put their homes up for sale. Okay. Another thing to ask you about things like credit cards, student loans, other areas where people borrow a lot. Are they going to get some relief with interest rates coming down?

Well, a little bit now and more as time goes on. So today's cut, a single cut like today, is not going to be a huge change for them. They were expecting the Fed to make additional cuts coming into this year and into next year. And over time, that will make a bigger difference on those interest rates for credit cards and private student loans. For stuff like car loans, it's kind of the same deal. It'll help a little bit now and more as rates keep falling.

Let me turn you, Laurel, to saving money. A lot of people recently have been enjoying these higher yields on high-yield savings accounts, CDs, things like that. Will this rate cut make those less attractive?

a little bit, but they're still a good idea. So those rates are going to come down along with interest rates, but they're still a pretty good place to put some of your money. That's because one of the benefits of, say, a high-yield savings account is to help people stay ahead of inflation instead of just stuffing cash under the mattress.

So even though yields are now going to be a bit lower on those accounts, keep in mind that inflation is now lower too. So a high yield savings account with a good rate is still going to be a smart option for where to put your, say, emergency fund.

And the rates on those high-yield accounts are still way, way better than the ones you see on standard checking and savings accounts. And you could also check out CDs if you have some cash and don't mind locking it in for a little bit because this is a good time, actually, to lock in those higher yields there before those rates fall further. Got it, got it. Last question, Laurel. Should we just get used to this as the new normal? Is borrowing money ever going to be as cheap as it used to be?

Probably not going to be quite what we saw before. Every aspect, every expert I talked to for this said that unless something very bad happens, like a recession or another pandemic, we kind of just need to get used to rates being a little bit higher than they were in those old pre-pandemic days. And PR's Laurel Wamsley with some news we can use on managing our money. Thank you. You're welcome.

Just a reminder that you can hear more advice on personal finance and other topics like mental health and parenting on the Life Kit podcast. I'm Mariel Seguera. Thanks for listening. This message comes from Discover, accepted at 99% of places that take credit cards nationwide. If you don't think so, maybe it's time to face facts. You're stuck in the past. Based on the February 2024 Nielsen Report. More at discover.com slash credit card.

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