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How the Federal Reserve cuts help -- and hurt -- your money

The Federal Reserve cut its benchmark rate by 0.5% on Tuesday. Here's what will happen to your money.

federal reserve rate cut

The Fed made its first emergency benchmark rate cut in 12 years.

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The Federal Reserve cut its benchmark rate by 0.5% on Tuesday, bringing the federal funds range to 1% to 1.25%. This is the first emergency rate cut in 12 years.

These rates impact everything from the interest you gain in your savings account to the interest rate you'll pay when you buy a home. Here's how your money is impacted by the Fed rate cut.

High-yield savings accounts

When the Fed cuts interest rates, many high-yield savings lenders are soon to follow. Right now, the APR for Marcus by Goldman Sachs savings accounts is 1.7%. Ally is at 1.6%. Last year both accounts saw rates at or above 2%.

The lower the APR on your savings account, the less cash you're earning on top of your balance. If you're trying to save for a big expense or even an emergency, your money isn't growing as quickly when interest rates drop.

If you have your money in a certificate of deposit account, you've already locked in a fixed rate. The day before the Fed rate cut, one-year CDs had a 0.48% APR, according to the FDIC. While savings accounts might suffer, those with CDs are safe from this cut. 

With the rate cut, it's up to each financial institution to decide if they want to cut their savings account rates, which means if you're eyeing a potential savings account or CD, you may want to grab it before rates drop.

Credit cards

Credit card APRs are tied to the prime rate, which closely follows the Fed rate. Credit cards have variable interest rates, which means you could see a drop in your monthly payments if you carry a balance. While the dip might not happen as fast as some others -- like savings rates, for example -- you can expect to see some fluctuation with credit card APRs soon.

Credit cards tend to have some of the highest interest rates around. When you're choosing a credit card, make sure you find one that fits your needs. Look for relatively few fees, the lowest APR you can find and the best rewards, if possible.

The people who aren't impacted are the credit card users who pay their balance in full every month. Those who carry a balance from month-to-month get charged interest. If you're not paying any interest at all, you won't see a change to your monthly bill.

Mortgages

If you're in the process of buying a home or have been thinking about refinancing your home, the drop in interest rates is in your favor. If you have an adjustable-rate mortgage, you'll see a drop in your mortgage payment.

Fixed-rate mortgages are based on the 10-year Treasury yields. This isn't the Fed rate but is closely tied to it. Right now, a 30-year fixed mortgage rate is as low as 3.5% for people with excellent credit and excluding JUMBO loans. This can be very different depending on where you live and the housing market in your area. If you're currently paying more than that on your home, you may want to consider refinancing to lock in the lowest APR you can.

If you're in the market to buy a home, the interest rate drop means your potential monthly payments could drop as well. Or you might be able to afford a higher-priced home that you previously didn't think you could since even a fraction of a percentage point can drastically lower your monthly payment.

Auto loans

Auto loans are also tied to Treasury yields -- not the Fed rate -- so they don't see an immediate drop, but could. Loans like auto loans that are tied to the prime rate usually follow the Fed rate. Which means it's only a matter of time before you'll see a new low interest rate on an auto loan. If you're shopping around for a car, see what you pre-qualify for first and shop around for the best rate before signing your paperwork.

Stock market

The recent stock market plunge -- and the corresponding Robinhood outage -- might scare you away from investments. But the lower stocks fall, the better it is for you as an investor to get in on certain securities. 

In stronger economies, the stock market can get a bump when interest rates drop, however it's not always the case. The day before the Fed cut, stocks were up. But hours after the Fed cut interest rates, stocks and bond yields took a sharp dip.

If you're an investor or thinking about getting started, a dip in the market is a good time to get in. The lower the initial cost of investments, the less you need to get started.

Related: How to invest your tax refund

Disclaimer: The information included in this article, including program features, program fees, and credits available through credit cards to apply to such programs, may change from time-to-time and are presented without warranty. When evaluating offers, please check the credit card provider's website and review its terms and conditions for the most current offers and information.