What Declining Interest Rates Could Mean for You

When the Federal Reserve lowers its key short-term interest rate—the federal funds rate—financial markets often move in response. But the impact isn't uniform across the board.

How could a Fed rate cut affect your balance sheet?

Here we look at what has happened historically to various parts of the market.

Short term

Cash investments—negative impact

Yields on cash investments typically fall, but the impact on various cash-related investments can vary.

Certificates of deposit (CDs)—negative impact

CD rates often fall, but not necessarily by the same amount across all CDs of all maturities.

Savings accounts—negative impact

Bank savings rates generally have fallen gradually.

Stock market—uncertain impact

Although stock markets initially may welcome a rate cut as a counterbalance to slowing economic growth, if the slowdown turns into a recession, markets tend to decline after an initial rate cut.

Financial stocks—negative impact

A shrinking gap between what banks pay on deposits and charge on loans can hurt bank stocks.

Utilities stock—positive impact

Because they typically pay steady dividends, utilities stocks tend to outperform as investors shift away from lower-yielding fixed income investments.

Adjustable-rate mortgages (ARMs)—positive impact

Usually tied to short-term rates, ARM rates can be expected to fall.

Auto loans—positive impact

Often tied to short-term rates, auto loan rates may fall. However, rates can vary depending on sales incentives and other factors.

Home equity loans—positive impact

Rates on home equity loans usually track short-term interest rates and may move gradually lower.

Short-term bonds—uncertain impact

Initially, short-term bond prices may rise. However, as existing bonds mature and their proceeds are reinvested into new, lower-yielding securities, the income they generate declines over time.