A Rate Cut Might Not Help You Much — But These 6 Steps Can

For the first time in nine months, the Federal Reserve looks ready to cut interest rates. It might not be the cure to painfully high borrowing costs that many Americans have been waiting for.

Policymakers are expected to trim their key borrowing rate by a quarter of a percentage point today when they wrap up their September meeting, bringing the federal funds rate to a new target range of 4 to 4.25 percent.

Interest rate cuts like these usually ripple through nearly every corner of the economy, giving households more breathing room in their budgets by lowering borrowing costs.

This month’s move, however, is not expected to be big enough to get noticed by most Americans. It would only take borrowing costs back to levels last seen in 2022, which at the time were the highest in more than a decade.

“For the average American, a small change in rates will have little to no effect on their day-to-day lives,” said Amy Hubble, CFA and CFP at Radix Financial.

Analysts interviewed by Bankrate also aren’t sure how much more the U.S. central bank will cut after this. Investors see two more quarter-point cuts by the end of 2025, according to CME Group’s FedWatch tool. But inflation has been rising as businesses start passing through tariffs to consumer prices. Some policymakers on the Federal Open Market Committee (FOMC) are worried that lowering rates too much or too soon would fuel more price hikes.

The very reason the Fed is cutting rates could also signal that more trouble for consumers is ahead. Hiring is slowing, unemployment is rising and many Americans are finding themselves on an elongated job hunt, the latest data from the Department of Labor shows.

Wondering what you should do to set your finances up for success at a time when both recession risks and inflation are rising? Here are the top six steps, recommended by financial experts.

Step 1: Attack your credit card debt

Credit card rates tend to move in step with the Fed, though not always by as much. Since the central bank began lowering borrowing costs in September 2024, credit card annual percentage rates (APRs) have dropped just 66 basis points, compared with the Fed’s full percentage point of cuts, Bankrate data show.

Borrowing on a credit card is also among the most expensive types of debt. The average credit card APR stands at 20.12 percent as of Sept. 10, according to Bankrate. At that rate, an indebted cardholder carrying the average $6,473 balance (per TransUnion) would rack up $9,426 in interest and need more than 18 years to pay off their debt, if they were making only the minimum payment, according to Bankrate senior industry analyst Ted Rossman’s calculations.

Credit card rates falling by a quarter-point cut would translate to minimal savings of only about $1 a month, Rossman said.

“People are hardly going to notice that,” Rossman said. “Jerome Powell and the Fed are not going to bring your credit card rate low enough to make it all of a sudden a cheap form of borrowing.”

If you’re carrying a balance, Rossman recommends two strategies:

• Apply for a 0 percent balance transfer card. The longest offers on the market give you up to 24 months to pay down debt interest-free, according to Bankrate’s rankings. These cards usually charge a one-time fee of 3–5 percent of the amount transferred.

• Work with a nonprofit credit counselor. These organizations can consolidate your debts into one monthly payment, negotiate lower interest rates with your lenders and help you build a budget by identifying expenses and tracking cash flow.

“Balance transfers are more of a DIY thing, but you need the discipline to stick with it,” Rossman says. “People who don’t have great credit or who won’t get a balance transfer limit high enough, a nonprofit credit counselor is a good second option.”

Step 2: Prioritize building up an emergency fund

Rate cuts alone aren’t likely to ease the sting of historically high borrowing costs, and they might not fix all the U.S. economy’s challenges either. Back in August, Fed Chair Jerome Powell described the labor market as being in a “curious kind of balance.” Demand for workers has cooled, but other factors beyond the Fed’s control — such as weaker immigration or uncertainty over tariffs — may also be weighing on job growth.

“A lot of it is making sure you have that solid emergency fund and just being very thoughtful about building up that emergency fund to three to six months of your expenses, so you don’t have to put purchases on a credit card,” said Faron Daugs, CFP, CEO of Harrison Wallace Financial Group, about the steps Americans should take right now.

At the household level, thin financial cushions are a big reason many Americans get stuck with high-interest credit card debt. Nearly half of cardholders with balances (45 percent) cite an emergency as the primary cause, Bankrate’s 2025 Emergency Savings Report shows. That includes surprise car repairs (11 percent), medical bills (10 percent), home repairs (8 percent) and other unexpected costs (16 percent).

Some Fed experts have been fearful that cutting rates could fuel more inflation, which could send Americans even further into debt. Day-to-day expenses (at 28 percent) were the second-most common reason for carrying a balance, Bankrate data also shows.

“If we have external factors — such as tariffs — impacting the price of goods and services, and we have a Fed lowering interest rates to stimulate or stave off increased unemployment,” said Dan Sudit, a wealth advisor at Crewe Advisors, “the bigger fear is the risk of stagflationary pressures. That would be the worst of all worlds.”

Experts recommend building an emergency fund with three to six months’ worth of expenses. If you’re starting from scratch, consider revisiting your budget and trimming your discretionary spending. A short-term “savings sprint” to build momentum or a “discretionary spending detox,” where you cut just a few purchases for a few months, could give your rainy day fund a boost without burning out.

Step 3: Lock in higher yields now, but don’t ‘yield chase’ with your emergency fund

Rate cuts don’t just mean lower borrowing costs. They also mean lower earnings on savings accounts.

When the Fed cut interest rates multiple times in late 2024, savers saw the annual percentage yields (APYs) on their accounts fall, too. The steepest declines have been among the nation’s nontraditional online banks. At their peak, the top high-yield savings account was paying a 5.55 percent APY. Today, the best offer is 4.35 percent.

Traditional brick-and-mortar banks didn’t cut rates much in response, but that’s only because they never lifted them much to begin with. The average yield on a savings account is 0.52 percent as of Sept. 10 versus 0.53 percent at this time a year ago, Bankrate data shows.

Savers, however, are still earning more than inflation in an online bank, but the cushion between the rate that prices are rising and the yields that the top savings accounts are offering is narrowing. Inflation in August rose 2.9 percent from a year ago, the latest consumer price index (CPI) report showed. That comes at a time when households still have less purchasing power than they did at the start of 2021, Bankrate’s annual Wage to Inflation Index shows.

Still, experts caution against chasing yields with your emergency fund. Liquidity and making sure your money is easily accessible when you need it is key, even if that means earning less. If you’ve already built your emergency cushion, however, now could be a smart time to consider locking in a certificate of deposit (CD) before yields drift lower.

“It always goes back to your potential need for the money,” Daugs said. “If you are in a situation where you need liquidity or full access to your funds, then maybe you are still better going off into a high-yield savings account.”

Step 4: To get the most competitive interest rate, work on improving your credit score and compare offers from multiple lenders

If there’s one factor that can affect your ability to borrow — and to do it cheaply — even more than the Fed, it’s your credit score. Nearly half of applicants (48 percent) were denied at least one loan or financial product between December 2023 and December 2024, according to Bankrate’s Credit Denials Survey. Among borrowers with scores below 670, that rejection rate jumped to 64 percent.

Daugs himself said he has seen his clients’ credit scores move mortgage offers by anywhere between a quarter and a full point.

“They don’t want to take on any excessive risk whatsoever,” he said. “If you’re sitting there with a low credit score, and they view you as a higher credit risk, you will pay for it.”

Monitoring your credit reports, paying all your bills on time, utilizing no more than 30 percent of your available credit, reducing your credit card balance and avoiding opening new accounts are all steps that can help you strengthen your credit score.

And when it comes to securing the best rate, don’t stop at your first offer. Analysts recommend shopping around with at least three lenders to make sure you’re getting the most competitive deal.

“Right now is a great time to really establish a [good] credit rating and get a solid foundation set,” Daugs said. “When opportunity knocks and housing becomes more affordable or rates go to a low enough point where they’re going to be able to jump into that first house, they’re going to be in a great spot to do it.”

Step 5: Don’t try to time the market

Financial experts have long cautioned Americans against trying to time the market. The same logic applies in a high-rate era — or even one where rates may be heading lower.

Homeowners, for example, could already have a refinance opportunity worth seizing, depending on when they locked in their mortgage. Mortgage rates have fallen to their lowest level since October 2024, Bankrate data show. You’ll need to weigh closing costs and appraisal fees, but experts say a general rule of thumb is whether you can cut your rate by at least half a percentage point.

The Fed doesn’t directly set mortgage rates. The central bank controls short-term rates, while longer-term borrowing costs are steered by markets. Inflation worries, tariffs and federal deficits could keep mortgage rates elevated — or even push them higher — regardless of Fed cuts. That’s exactly what happened in September 2024, when mortgage rates climbed even as the Fed lowered its benchmark rate.

“I wouldn’t necessarily hold off on purchasing [a house] because you expect the Fed to cut rates, because that property may not be there in a year,” Daugs said. “An interest rate-cutting environment is not as impactful as an interest rate-increasing environment. They never come down that fast.”

If you’ve been approved for a mortgage but haven’t closed on your house yet, Daugs recommends asking about any “float-down” options, which allows you to get a lower interest rate if market rates fall.

Step 6: Don’t forget to plan ahead — and never underestimate the value of little steps

Recession risks, job losses, tariffs, higher inflation — you name it — are all factors beyond Americans’ control.

What you can control, however, is your day-to-day money management. Even simple moves like planning ahead and monitoring your accounts can make a difference, Hubble said. That might include withdrawing cash in advance of when you need it, so you aren’t stuck paying fees at an out-of-network ATM.

The average total ATM fee climbed to a record $4.86 in 2025, according to a Bankrate analysis, while the typical overdraft fee now stands at $15.65. Those costs have increased over the years, just as inflation and interest rates have.

Putting your savings contributions — whether it’s a few dollars or a few hundred — on autopilot can also help, she adds. Deducting the funds you want to stash in your savings directly from your paycheck can relieve some of the stress and stop you from treating your entire paycheck as spending money.

“We often counsel our clients that you should never take action based on fear or outside economic noise that is outside of your control. Focus on things you can control,” Hubble said. “These foundational actions will have a far greater impact on your long-term success than any single market event.”

Strategies like these help take the edge off the high-rate era that’s left many consumers shell-shocked after growing used to years of low borrowing costs since the Great Recession. But experts warn: You shouldn’t necessarily wish for those days to return.

“If interest rates are low, if the Fed is lowering rates or inducing stimulus like they did back in 2020 and 2021, there’s a reason for that, and it’s because things are hanging off of a cliff, and they’re trying to bring things back before they plummet,” Sudit said. “As a consumer, I want really low interest rates, but as a citizen of our greater economy, we should want the fed funds rate to not be at zero.”