How the Federal Reserve's Interest Rate Affects Your Money
The Fed's interest rate moves savings APYs, credit card rates, car loans and (indirectly) mortgages. Learn how, with today's federal funds rate.
When the Federal Reserve raises or lowers interest rates, it changes the cost of borrowing and the reward for saving across the economy. The effective federal funds rate, the Fed’s main benchmark, is currently 3.88% (as of October 13, 2026).
You can’t borrow at the federal funds rate yourself, but it ripples into almost every rate you see: on your savings account, your credit card and your next car loan.
What is the federal funds rate?
The federal funds rate is the interest rate banks charge each other for overnight loans. The Fed’s policy committee, the Federal Open Market Committee (FOMC), meets eight times a year and sets a target range for this rate. The “effective” rate is the actual average rate at which these loans happen, and it stays within the target range.
The Fed adjusts this rate to pursue its two goals set by Congress: maximum employment and stable prices.
- Raising rates makes borrowing more expensive, which cools spending and helps bring inflation down. Current CPI inflation is 3.7% year over year.
- Cutting rates makes borrowing cheaper, which encourages spending and supports jobs when the economy weakens.
How it affects you
Savings accounts and CDs: move with the Fed
When the Fed raises rates, online banks typically raise savings APYs within weeks. When the Fed cuts, those APYs usually fall just as quickly. CD rates move in anticipation of where the Fed is heading. Treasury bills track the Fed especially closely: the 3-month T-Bill rate is 4.09% today.
Credit cards: move almost immediately
Most credit cards have variable APRs tied to the prime rate, which banks set at roughly 3 percentage points above the top of the federal funds target range. When the Fed moves, your card’s APR usually changes within one or two billing cycles.
Car loans and personal loans: affected for new borrowing
Rates on new auto and personal loans tend to follow the Fed. If you already have a fixed-rate loan, your payment doesn’t change.
Mortgages: affected indirectly
This is the one that surprises people. Fixed mortgage rates follow long-term Treasury yields more closely than the federal funds rate. The 10-year Treasury yield is currently 5.21%, and the average 30-year fixed mortgage rate is 7.40% (Freddie Mac, October 8, 2026). Mortgage rates can even rise after a Fed cut if investors expect higher inflation ahead. Adjustable-rate mortgages and home equity lines of credit (HELOCs), however, often respond more directly.
Quick reference
| If the Fed… | Savings & T-Bills | Credit cards | New car loans | 30-year mortgages |
|---|---|---|---|---|
| Raises rates | Earn more | Cost more | Cost more | Often rise, but not always |
| Cuts rates | Earn less | Cost less | Cost less | Often fall, but not always |
What to do when rates change
When rates are rising:
- Shop for a higher savings APY; online banks usually move first.
- Pay down variable-rate debt like credit cards and HELOCs.
- Keep CDs and T-Bills short, so you can reinvest at higher rates.
When rates are falling:
- Consider locking in longer CD or Treasury terms before yields drop further.
- Look into refinancing high-rate debt.
- Expect your savings APY to decline, and compare offers regularly.
Key takeaway: The Fed doesn’t set your rates directly, but its decisions flow quickly into savings and credit card rates, and more loosely into mortgages. Watching it helps you time when to lock in a rate and when to wait.
Use the calculator below to see how a different interest rate changes how your savings grow.
Sources
This content is for educational purposes only and isn't financial, tax or investment advice. Rates change daily; confirm current terms with your bank, broker or TreasuryDirect before making decisions. See our full disclaimer.