mortgages, credit cards, car loans

Interest rates moved lower in late 2024 as the Federal Reserve cut rates three times, shaving a full percentage point off the federal funds rate since September. By 2025, that trend is likely to continue.

But with inflation still above the Fed’s 2% target, a strong labor market and a new administration, the central bank already indicated it would move more slowly on rate cuts in the coming year.

Federal Reserve officials cut their outlook for expected cuts in 2025 to two from four, assuming quarter-point increases, according to the minutes of their December meeting.

“Robust U.S. economic data added to concerns that the Federal Reserve sees little scope to cut interest rates in 2025,” Solita Marcelli, Americas chief investment officer for UBS Global Wealth Management, wrote in a research note.

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Experts expect the Fed to hold interest rates at the meeting on 28-29. January and follow with only a few interest rate cuts throughout the year. Given that, most Americans can expect to see their financing costs ease, but not by much, said Greg McBride, chief financial officer at Bankrate.

“Rates were abnormally low for more than 15 years and they’ve been abnormally high for the last two,” he said. “They are coming down, but where they will settle will be a level that is higher than what we had seen before 2022.”

Although Fed officials indicated two cuts, McBride expects as many as three to come over the course of the year, bringing the key benchmark rate to 3.5%-3.75%. Even if it’s not the interest rate consumers pay, the Fed’s actions still affect the loan and savings rates consumers see every day.

From interest on mortgages and credit cards to car loans and savings accounts, here are his predictions for where the courses are heading in the coming year:

Prediction: Credit card rates fall to 19.8%

Since the central bank started lowering interest rates, the average credit card interest rate has only fallen from extremely high levels.

Going forward, annual percentage rates are unlikely to improve much more. McBride predicts that the average APR on a credit card will drop to 19.8% by the end of 2025, down about half a percentage point from where it is now.

Cardholders usually see the impact within a billing cycle or two. But for those who carry a month-to-month balance, “borrowers must continue to repay debt,” McBride said. Prices “will not fall fast enough to provide meaningful relief.”

Prediction: The mortgage interest rate will reach 6.5%

“Mortgage rates have gone up — not down — since the Fed started cutting rates in September,” McBride said.

McBride now expects mortgage rates to “spend most of the year in the 6% range,” he said, “with a brief spike above 7%.

The 30-year fixed-rate mortgage could end the year at 6.5%, he predicted. But since most people have fixed-rate mortgages, their interest rate doesn’t change unless they refinance or sell their current home and buy another property.

Prediction: Interest rates on car loans fall to 7%

When it comes to their cars, consumers have been facing larger monthly payments thanks to higher car prices and increased interest rates on new loans.

While anyone planning to finance a new car can benefit from the coming lower prices, affordability concerns will not change significantly.

Five-year new car loan rates are expected to fall to 7% from 7.53%, while four-year used car finance costs could fall to 7.75% from 8.21% by year’s end, according to McBride.

Prediction: High-yield savings rates fall below 4%

In recent years, top-yielding online savings accounts have offered the best returns in over a decade and still pay nearly 5%, according to McBride.

While those rates are falling, “they’re coming down slowly and they’re still way above inflation,” McBride said.

McBride predicts that top-yielding savings accounts and money market accounts could hit 3.8% by the end of 2025, while top-yielding one- and five-year CDs will fall to 3.7% and 3.95%, respectively.

“It makes for a pretty attractive environment for savers,” McBride said.

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