As widely expected, the Federal Reserve cut its benchmark interest rate on Thursday, making it slightly cheaper to borrow money through credit cards, loans and car financing.

The interest rate fell by 25 basis points to a range of 4.50% to 4.75%. This follows a larger cut of 50 basis points in September, which saw rates fall from a peak of 5.25% to 5.50% for most of 2024.

The Fed began cutting rates in September to help stimulate the economy as inflation cools and the labor market softens. Before that, it raised interest rates for two years to curb inflation, which peaked at 9.1% in June 2022. Since then, inflation has fallen to 2.4%, putting it much closer to the Fed’s 2% target.

In a speech in September, Fed Chairman Jerome Powell indicated that another 25 basis point cut could happen before 2025 if current economic trends remain stable.

The Fed expects interest rates to fall to 3.4% by the end of 2025, which would further increase savings on borrowing costs.

Below is a look at how the recent interest rate cuts could affect your monthly borrowing costs. The breakdown includes the current cut of 25 basis points and the cumulative cut of 75 basis points since the Fed began cutting rates in September, as estimated by Bankrate.

For borrowers with a $5,000 balance:

• Savings today reduction of 25 bp: $1 per month
• Total savings from interest rate cuts of 75 basis points since July 2024: A savings of $3 per month

For a new personal loan of $10,000, with a term of 3 years:

• Savings today reduction of 25 bp: $1 per month
• Total savings from interest rate cuts of 75 basis points since July 2024: $3 per month

On a new car loan of $35,000, with a term of 5 years:

• Savings today reduction of 25 bp: $4 per month
• Total savings from interest rate cuts of 75 basis points since July 2024: $12 per month

On a $50,000 HELOC:

• Savings today reduction of 25 bp: $10 per month
• Total savings from interest rate cuts of 75 basis points since July 2024: $31 per month

You may see a slight reduction in interest rates, although the savings will depend on the size of your loan, your credit score and current mortgage market conditions. However, borrowers with a repricing may still face higher interest rates than before.

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