Financial Fundamentals Blog

Interest Rate Trends: What's on the Horizon for Borrowers and Savers

Woman sitting at her desk reviewing her savings accounts


Increasing interest rates can create several challenges and opportunities for borrowers and savers. While this can seem overwhelming, knowing how to respond to the changing economy and be flexible can minimize these feelings and help you navigate changing finances a little easier.


How Interest Rates Impact Borrowers and Savers

In March 2024, the Federal Reserve decided to keep the federal funds rate (a benchmark used to determine the cost of borrowing) the same after steadily increasing it in recent years. The target rate hasn’t decreased since March 2020 at the beginning of the pandemic, when it was at zero.


While federal fund rates are staying the same, the Federal Reserve has indicated that there may be up to three 0.25% cuts throughout 2024. Here’s how these changes can impact borrowers and savers:


Home Buying

The Federal Reserve doesn’t directly decide mortgage rates, but how the federal funds rate is treated determines what mortgage lenders charge. Because of this, mortgage interest rates have remained at elevated levels, which can make it difficult to consider purchasing a house.


Most experts in the housing market are predicting mortgage rates to decrease throughout 2024, especially if the forecasted federal funds rate decreases happen. But whether these changes will have a meaningful impact on home affordability is still unknown.



Whether or not it’s a good time to refinance your mortgage loan depends on your unique situation. Here’s what you should consider:


If interest rates are lower than when you first got your mortgage, you may want to consider refinancing. However, if you got your mortgage during the record-low interest rates in 2020 and 2021, this may not be the ideal time to refinance because you could end up with a higher interest rate.


However, if you’re considering refinancing to lower your monthly payment, it’s important to keep in mind that not all of the options available to you will yield less interest throughout the term of the loan. Therefore, you’ll want to consider the long-term outlook of your current mortgage compared to a refinanced mortgage to determine how much you’re spending in total. A lower interest rate could mean that you’re extending the life of your mortgage and actually paying more in interest.


Debt Consolidation

High interest rates also mean carrying debt is more expensive. You may be able to save more money by prioritizing paying off high-interest debt, but it could also make sense to pursue debt consolidation.


Debt consolidation bundles various debts into a single loan so instead of making several payments between separate debts each month, you’re making payments on just the consolidation loan.


If you’re considering debt consolidation, an important thing to consider is the interest rate. Add up the interest rate for each debt you’re thinking of consolidating and then determine the average. Ideally, you’ll want to aim for an interest rate lower than that average. If the consolidation loan’s interest rate is higher than your average, you’ll end up paying more in interest over the life of your loan.


Savings Accounts

At this point, you may be wondering how fluctuating interest rates impact your savings account. When the federal funds rate is lowered, the annual percentage yield (APY) generally drops simultaneously. In a high-rate environment, APYs will often also increase.


However, when federal fund rates stay the same, the APY will likely not increase or decrease much. There are a couple of ways to respond to this with your savings account.


While traditional savings accounts may not change when the federal funds rate stays the same, a high-yield savings account will still provide a stronger return compared to a traditional account.


Certificates also have fixed rates, so if you invest your funds into a certificate, you won’t be impacted if the APY is decreased later. After the Certificate matures, you can choose to cash it out or reinvest it into another Certificate for more financial growth.


How To Adapt To Changing Economic Conditions

Economic conditions are always fluctuating. Knowing how to respond to them can help minimize the pressure and stress you may feel. Consider these practices to help navigate changing economic conditions:

  1. Limit your discretionary spending, such as by cutting down on takeout lunches or coffees.
  2. Save as much as possible. Even a small amount each month will give you some financial cushioning in case of an emergency.
  3. Review your budget to identify subscriptions you no longer use or that are too expensive to continue using.
  4. Rethink how you shop, such as by going with a generic or store brand over a name brand or conventional produce over organic produce.
  5. Rethink impulsive purchases. Many retailers tap into the fear of missing out (FOMO), which can result in unplanned clothing, household, electronic or other purchases. To limit this, only purchase what you went into a store for and remove saved payment information from websites to make impulsive purchases more difficult.


Navigate Fluctuating Interest Rates with a Realistic Budget

One of the essential parts of navigating changing interest rates is a realistic budget that enables you to reach your goals, save, and be flexible with a changing economy. Find out how to create a realistic budget with our comprehensive guide, Budgeting for Beginners: A Quick Guide for Budgeting in Your Twenties.


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