This week marks the first anticipated decrease in interest rates by the Federal Reserve in four years, yet experts caution not to expect any drastic changes in financial situations.

When the Federal Reserve wraps up its policy meeting on Wednesday, most economists believe the Fed will reduce its benchmark short-term federal funds rate. However, it remains uncertain whether the cut will be a quarter-point or a half-point from its 23-year peak of 5.25 to 5.50%.

Regardless of the specifics, analysts advise that consumers likely won’t see immediate effects. Financial institutions typically delay lowering the interest rates they charge borrowers following a Fed rate cut but can be quick to reduce rates on savings accounts and certificates of deposit.

“Although lower rates are beneficial for those with debt, it’s important to understand that just one rate reduction won’t significantly impact most individuals,” stated Matt Schulz, a credit analyst at LendingTree. “The most effective way for people to lower interest expenses is by taking control themselves.”

Greg McBride, the chief financial analyst at Bankrate, emphasized that the cumulative effect of multiple interest rate decreases over time will be more meaningful.

What About Credit Card Rates?

Yes, credit card rates are likely to decline from their all-time highs in the forthcoming months, but Schulz warns that consumers shouldn’t anticipate significant reductions in their credit card statements just yet.

For instance, in September, the average new credit card rate remains at 24.92%, unchanged from August and the highest since LendingTree started tracking this information in 2019. If you owe $5,000 on a credit card with a 24.92% APR and make monthly payments of $250, it will take you 27 months and $1,528 in interest to pay off the balance.

• If the APR falls by a quarter point to 24.67%, it will still take 27 months but cost $1,506 in interest, resulting in a savings of $22 over two years, or less than a dollar a month.
• A half-point drop to 24.42% would reduce the payoff to 26 months with $1,485 in interest, saving one month of payments and $43 in overall interest, about $1.50 monthly.

Daniel Milan, managing partner at Cornerstone Financial Services, pointed out that credit card interest rates are not strictly linked to the Fed’s actions.

“Financial institutions base their rates on internal risk assessments. If credit risks, such as increasing balances and defaults rise, APRs might not drop even if the Fed acts,” Milan explained.

Recently, credit card debt soared to a record $1.14 trillion, with 9.1% of credit balances in delinquency within the last year, while personal savings rates have hit a near two-year low, according to government statistics.

Rather than waiting for interest rates to help manage credit card debts, experts suggest consumers should look into consolidating their debts with 0% balance transfer cards or low-interest personal loans.

Are Auto Loans Becoming More Affordable?

Auto loans are also expected to see some decrease in rates, but again, significant drops shouldn’t be expected, according to analysts.

A Fed rate cut won’t instantly bring consumers back to dealerships, but it could encourage some hesitant car buyers to spend more again, said Jessica Caldwell, head of insights at Edmunds.

An Edmunds survey from August indicated that 64% of car shoppers said a Fed rate cut would influence when they consider buying a car. Nonetheless, vehicle prices are still quite high.

“Ultimately, potential buyers need approval for loans and must reliably cover their monthly payments to keep their vehicles,” remarked Jessica Caldwell from Edmunds.

Will Purchasing a Home Be More Manageable?

The Federal Reserve does not set mortgage rates directly, but these rates typically follow similar patterns.

Currently, mortgage rates will continue to vary weekly based on fluctuations in the bond market and inflation data. Recently, Freddie Mac’s average for 30-year fixed-rate mortgages was at 6.20%, down from 7.22% noted on May 2, even with the Fed keeping rates steady.

Over the next few weeks, the 30-year fixed mortgage rate is expected to hover between 6% and 6.5%, with a possibility of dipping below 6%, according to Jacob Channel, LendingTree’s senior economist.

“However, mortgage rates are still considered high compared to historical trends over the past decade,” he added. “Additionally, home prices are at or near peak levels in numerous markets.”

Jared Chase, a financial advisor at Signature Estate & Investment Advisors, noted, “Even with lowering rates, it doesn’t affect the overall purchase price.”

What Impact Will There Be on Savers?

Individuals who have been accustomed to earning consistent, low-risk returns from high interest rates are likely to notice a swift decrease in the yields from their savings and certificates of deposit (CDs), according to financial experts.

“Savings rates are already declining and will keep dropping, but there’s no reason to panic,” Schulz explained. “If you haven’t already set up a high-yield savings account or secured a CD rate, you may already have missed the peak. However, it’s still a good idea to consider these options now before the rates decrease even more.”

Even though rates are expected to drop, “savers looking for the best available options will still outpace inflation for a significant time,” stated Greg McBride, chief financial analyst at Bankrate.

For those savers who are reluctant to commit their money for extended periods, Daniel Milan, managing partner at Cornerstone Financial Services, suggests considering high-quality dividend growth stocks.

“The growth of dividends is crucial,” he remarked, advising to look for companies that can increase their dividends by 7-10% annually in order to counter inflation.

What’s in Store for the Stock Market?

The stock market has already started to rise in anticipation of lower interest rates. Generally, lower rates tend to lift stock prices as businesses can borrow money more cheaply to invest and expand.

Recently, the broad Standard & Poor’s 500 index recorded its best weekly performance of the year, while the blue-chip Dow reached a record high during Monday’s trades.

In the recent market surge, investors have broadened their purchasing focus. They are not only buying the so-called Magnificent Seven—Apple, Amazon, Alphabet, Meta, Tesla, Microsoft, and Nvidia—but are also acquiring high-quality dividend-paying utility, healthcare, real estate, and consumer staple stocks, according to Milan.

“This wider participation since early July is encouraging and beneficial for the market,” he noted.

Medora Lee reports on finance, markets, and personal finance for YSL News.