Fed rate cut: Here’s the biggest losers and winners if rates drop on Nov. 7

The Federal Reserve’s Federal Open Market Committee (FOMC) will meet on November 6 and 7, and all signs point to the second federal funds rate cut of 2024. After September’s aggressive half-point reduction, economists widely expect another quarter point cut that would bring the benchmark rate to between 4.50% and 4.75%.

This matters for your wallet because Fed decisions ripple through nearly every aspect of household finances — from what you earn on savings to what you pay on loans. While some will feel an almost-immediate pinch in their wallets, others stand to gain from a rate drop.

Let’s look at who the biggest losers and winners might be in the wake of next week’s Fed rate cut.

Fed rate cut losers

1. High-yield savings holders

The days of earning 5.00% APY or more on high-yield savings accounts (HYSAs) may soon end. When the Fed cuts rates, banks that offer HYSAs typically reduce their yields within weeks. After September’s half-point cut, many online banks dropped their rates. For example, Wealthfront dropped its APY from 5.00% to 4.50%, while SoFi reduced its savings yield from 4.50% to 4.30%. Accounts like LendingClub’s LevelUp Savings edged slightly lower, but remained above 5.00% APY.

What could another quarter-point cut mean for your money? Let’s assume that your APY will mirror the Fed cut by moving from 4.50% to 4.25% on your $10,000 balance.

These numbers show high-yield savings accounts are still worth it even after November’s potential rate cut. HYSAs will continue offering well above the 0.01% APY that many traditional savings accounts offer. That said, it’s worth exploring other options for your cash. Consider moving funds you don’t immediately need into certificates of deposit (CDs) to lock in today’s best rates.

💡Smart move: If you don’t have one, consider opening one of the best high-yield savings accounts that are still paying out significantly higher returns than your traditional savings. If you already have one, don’t rush to move your money out of it, as HYSAs will continue providing you with solid monthly interest payments. Instead, consider investing a part of your savings into a CD ladder to lock in today’s highest rates for longer periods while getting regular, staggered access to your funds as terms mature.

Dig deeper: High-yield savings accounts vs. certificates of deposit

2. On-the-fence CD shoppers

Certificate of deposit rates will likely decline in the days leading up to and after the Fed’s November meeting. Unlike high-yield savings accounts, CDs lock in your rate for their entire term. This makes today’s CD rates quite attractive, as rates are likely to continue falling into 2025.

If you already hold CDs at higher rates, you’re in good shape – your rates are guaranteed until maturity. For those considering new CDs, now’s the time to act. Many banks currently offer CD rates above 4% APY, but these deals probably won’t last long after the Fed cuts rates.

Building a CD ladder can help protect you against falling rates while maintaining fund flexibility. Here’s how it works: Instead of putting a large sum of money into one CD, you split it among multiple CDs with different maturity dates. For example, you could divide $20,000 into four $5,000 CDs maturing in six, nine, 12 and 18 months. As each CD matures, you’d reinvest at the ongoing APYs then or use the money if needed.

💡Smart move: While short-term CDs may offer the highest yields, don’t dismiss longer terms. A two-year CD locked in today will provide steady guaranteed returns well into 2026, even as other rates fall. The steadier returns can make up for the lower rates you may find on long-term CDs. Just keep your finances in mind and avoid locking away funds you might need access to, as early withdrawal penalties can eat into your earnings.

Expert take: Here’s why you need to invest in a CD today

3. Fixed-income retirees

Lower interest rates create a challenging situation if you count on your fixed-income investments to provide regular income. When rates drop, new bonds offer smaller interest payments than older ones. This means that bond funds — a common choice for fixed-income investors — might pay out less each month than they used to.

It’s like a domino effect: As the Federal Reserve cuts rates, it impacts more than just bonds. Money market funds, which many people use for relatively safe income, will likely see their yields and monthly payouts drop too. These funds invest in short-term loans to governments and companies. As their old loans come to term, they’ll replace them with new ones that may have lower interest rates.

The good news? You have options to help maintain your income. Consider spreading your money across different types of investments that pay regular income. This could include mixing in some dividend-paying stocks from large, stable companies — think utilities or consumer goods companies that have long tracks of paying dividends. Similar to the way CD ladders work, bond ladders can also help by giving you regular access to your money while locking in higher rates.

You can buy bonds using one of the best investment platforms, including well-established names like Charles Schwab and Fidelity. Wealthfront is another investment platform that can automatically build and manage an entire bond ladder for you.

💡 Smart move: Take a careful look at your investments with the help of a financial advisor and gradually adjust your investment mix to meet your long-term goals. The right financial advisor can help you find the right balance between your income and the best budget for your golden years.

Dig deeper: how to find a trusted retirement advisor

Get matched with a trusted financial advisor in 4 simple steps

Fed rate cut winners

1. Stock market investors

Interest rates typically fall after federal funds rate cuts, allowing the stock market to perk up — and we’re already seeing this play out. Companies can borrow money more cheaply, which often leads to higher profits and improved stock performance.

Think of it this way: When the Fed cuts rates, businesses can borrow money at lower costs to expand operations, upgrade equipment or hire more workers. This often translates to higher production levels and improved profitability over time.

Plus, as savings account yields decline, many people move their money from cash into stocks in search for better returns. In the same manner, lower yields make government and corporate bonds less attractive to investors, potentially steering more investment dollars toward stocks.

History shows that stocks have often performed well in the months following Fed cuts that normalize its benchmark rate, though past performance never guarantees future results. Each rate-cutting cycle brings its own unique market conditions and challenges.

💡Smart move: Now might be a good time to review your investment mix. If you’ve been holding extra cash to take advantage of high savings rates, consider gradually shifting some money into an investment robo-advisor. Some of the best investment platforms can automatically build a diversified portfolio of stocks, mutual funds and other assets — one that aligns with your risk tolerance and long-term goals.

Dig deeper: How to automate investing with robo-advisors

2. Homeowners and homebuyers

A Fed rate cut brings welcome news to both current homeowners and prospective buyers, including those looking to buy a new home in retirement or downsize to a more manageable property. While mortgage rates don’t directly mirror Fed decisions, lending costs tend to ease when the Federal Reserve reduces rates. This could translate into lower monthly payments for homebuyers or homeowners with adjustable-rate mortgages (ARMs).

If you have a fixed-rate mortgage from the past few years when rates were at historic lows (think 3% to 4% range), there’s no rush to refinance. However, if you locked in a rate above 7% recently, keep an eye on rates in the coming months — but remember that refinancing comes with closing costs that typically run 3% to 6% of your loan amount. You’ll want to weigh these costs against potential savings and length of time you plan to stay in your home.

Keep in mind that a Fed rate cut won’t automatically push mortgage rates lower — we’ve seen this in the five straight weeks of rate increases since the Fed lowered rates in September. That’s because mortgage rates respond to many factors beyond Fed decisions, including inflation, employment and other economic data, as well as government spending.

If you’re house hunting right now, try to avoid timing your purchase with the market, as worrying about interest rates often leads to missed opportunities. Many would-be buyers sat on the sidelines in recent years waiting for perfect rates, only to watch home prices climb higher in desirable neighborhoods. Plus, with limited homes for sale in many areas, finding the right home may matter more than securing a lower rate. Simply focus on what you can control: your budget, desired location and must-have features in a home.

💡Smart move: Whether you’re shopping for a home or already own one, focus on your long-term housing needs rather than short-term rate movements. For buyers, when you find a home you love and the monthly payment fits your budget, consider moving forward — you can’t time the market, but you can choose your dream home. For those with existing mortgages, set up rate alerts with lenders and consider refinancing when you can lower your rate enough to offset the closing costs within a reasonable timeframe. See our guide to getting the best rate on your mortgage.

Dig deeper: How much does a 1% rate change in mortgage rates actually matter?

3. Credit card borrowers

If you’re carrying credit card debt, November’s expected Fed rate cut may bring some relief – though you might need patience to see changes in your statements. While credit card annual percentage rates (APRs) typically react to movements in the Fed’s benchmark rate, the timing of those reactions vary.

Credit card issuers often take their time lowering APRs after a Fed cut. This differs from their speedier approach to Fed rate hikes, which they typically implement in one or two billing cycles. Credit card companies carefully monitor their profit margins, which means they might not quickly pass along these interest savings.

The timing gap matters because credit card rates sit at historic highs, averaging 21.76% as of August 2024. Combining November’s potential rate cut with September’s half-point drop might lead to some relief in the coming months.

💡 Smart move: Rather than waiting for your card issuer to lower your APR, take control of your debt by exploring balance transfer credit cards that offer lengthy 0% intro APR periods. Some of the best options offer 0% intro APR on balance transfers for 18 months or more, including the Wells Fargo Reflect and Citi Double Cash. Just be sure to pay off your balance before the introductory period ends.

Dig deeper: Wonder what happens to your credit card debt after you die? Here’s the answer

FAQs: Smart money moves as rates drop

With another Fed rate cut likely coming in November, here’s what you need to know about protecting and growing your money.

Should I lock in my mortgage rate?

If you’ve found a mortgage rate that fits your budget, consider using a mortgage rate lock to guarantee that rate for a specific period while you close on your loan. Some lenders offer free rate locks for 30 days, with fees ranging from 0.25% to 1% of your loan amount for longer locks. While another Fed rate cut could lower mortgage rates eventually, there’s no guarantee of when that might happen. Rates actually went up after September’s Fed cut. Rather than trying to time the market, focus on finding a monthly payment that fits your financial situation.

Are CDs worth it right now?

Yes, CDs are worth it right now, even as CD rates may be lower for longer terms. That’s because locking in today’s rates helps you avoid future lower rates as the Federal Reserve cuts its benchmark rate further. Plus, your rate stays fixed until your CD matures, regardless of further rate cuts.

Should I move my money into stocks?

Consider shifting some savings into stocks if you’re OK with the risk and potential for loss and have more cash than you need over the short to medium term. Stocks may offer better growth potential when savings and CD rates fall, but keep in mind that past performance doesn’t guarantee future returns. Avoid moving all your money at once — gradually invest over time using a diversified portfolio that matches your risk tolerance. Keep enough cash in a high-yield savings account to cover up to six months of expenses, and avoid investing money you’ll need within the next few years.

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About the writer

Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia’s expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.

Article edited by Kelly Suzan Waggoner