What the October 2025 Fed rate cut means for you

On October 29, 2025, the Federal Reserve cut interest rates by 25 basis points, lowering its target range to 3.75% - 4.00%, following a similar rate cut in September.

While this change is a proactive step to help keep the economy on stable ground, it can impact your personal finances as well. You could end up paying less interest on your credit card or loans while you may earn slightly less from your interest-bearing account.

Let's break down what this change is and what it means for you and your money.

Why is the Fed cutting rates?

The Federal Reserve, often referred to as the Fed or the FOMC (Federal Open Market Committee), has two primary jobs: to support maximum employment and to maintain stable prices. This rate cut aims to keep the economy stable by encouraging borrowing and investment as job growth slows.

Even though key economic indicators such as inflation remains around 3%, above the Fed's 2% target, policymakers now see greater risk in a cooling job market than in rising prices. Job growth has slowed due to several economic factors, such as uncertainty around tariffs and the government shutdown. By making it less expensive to borrow money, the Fed hopes to encourage businesses to invest in new projects, expand their operations and hire more people. Lower rates help businesses expand and consumers manage their debt more affordably.

How the Fed's rate cut affects savers and borrowers

A rate cut can influence everything from mortgage and credit card rates to what banks pay on savings accounts. Here's how the Fed's latest move could affect both borrowers and savers.

Bank deposit rates could decrease. If you have money in a checking, savings or money market account, the interest rate is also influenced by the Fed rate. The October cut could mean savers earn slightly less on their deposits, though the impact should be modest given the small size of the cut.

Borrowing costs may ease. When the Fed cuts rates, borrowing becomes cheaper, since the Fed's baseline rate influences what lenders charge. That could help households and businesses with variable-rate debts, as well as those seeking new loans.

Let's take a closer look at how the Fed's move could impact the cost of borrowing money.

What the Fed's rate cut means for you

For most people, the most immediate impact of a Fed rate cut is on the cost of borrowing money. When the Fed lowers its target rate, lenders often follow suit, which can lead to savings on various types of loans and lines of credit. Here's a look at how you might feel the effects.

Credit cards and lines of credit. Many credit cards and lines of credit, like a home equity line of credit (HELOC), have variable interest rates. These rates our often tied to The Wall Street Journal Prime Rate, which represents the base rate that banks charge their most creditworthy customers. Changes in the federal funds rate directly influence the prime rate so a rate cut means you will see a decrease in the prime rate, and in turn a reduction in variable interest rates. Following a rate cut, you will likely see a small reduction in the interest rate. However, credit card APRs remain higher than they were a few years ago, so this is a perfect moment to get serious about paying down high-interest debt.

Mortgage rates. If you have an adjustable-rate mortgage (ARM) and are past the initial fixed-rate period, you could see a decrease in rate at your next adjustment period. If you have a fixed-rate mortgage, your current payment won't change. However, refinancing could lower your monthly payments and save you significant money over the life of the loan. Just remember to weigh the upfront closing costs against your potential long-term savings.

Student loans. Federal student loans have fixed interest rates, so they aren't affected by Fed rate changes. However, if you have private student loans with a variable rate, you may see a modest reduction in your payments. The lower-rate environment could also be a good opportunity for those with fixed-rate private or federal loans to consider refinancing their debt to lock in a new, lower rate.

Business loans and investments. Lower interest rates make borrowing money more affordable for small business owners. Whether you're looking to invest in new equipment, hire additional employees or fund another project, the cost of capital is now lower. This is precisely the kind of economic activity the Fed hopes to encourage with a rate cut.

Looking ahead

The Fed's October cut won't be the last adjustment as FOMC is set to meet again on December 9 and 10. Whether future rates rise or fall, Citizens is here to help you make sense of how these changes affect your borrowing, banking and long-term financial plans.