Interest rates moved lower near the end of 2024 as the Federal Reserve cut rates three times, shaving a full percentage point off the federal funds rate since September. In 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 that it would move more slowly on rate cuts in the year ahead.
Federal Reserve officials reduced their outlook for expected cuts in 2025 to two from four, assuming quarter-point increments, according to minutes from their December meeting.
“Robust U.S. economic data heightened concerns that the Federal Reserve may see little scope for cutting rates in 2025,” Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management, wrote in a research note.
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Experts anticipate the Fed will hold steady on interest rates at its Jan. 28-29 meeting, and follow with only a few rate cuts through the year. Given that, most Americans can expect to see their financing expenses ease, but not by much, said Greg McBride, chief financial analyst at Bankrate.
“Rates were abnormally low for the better part of 15 years, and they’ve been abnormally high for the last two,” he said. “They’re coming down, but where they’ll settle out is going to be a level that’s higher than what we had seen before 2022.”
Although Fed officials indicated two cuts, McBride expects as many as three coming over the course of the year, bringing the key benchmark rate to 3.5%-3.75%. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates consumers see every day.
From mortgage rates and credit cards to auto loans and savings accounts, here are his predictions for where rates are headed in the year ahead:
Prediction: Credit card rates fall to 19.8%
Since the central bank started cutting interest rates, the average credit card interest rate has only edged off extremely high levels.
Going forward, annual percentage rates aren’t likely to improve much more. McBride predicts that the average APR on a credit card will fall to 19.8% by the end of 2025, down about half a percentage point from where it stands now.
Cardholders usually see the impact within a billing cycle or two. But for those carrying a balance from month to month, “borrowers need to press on with debt-repayment efforts,” McBride said. Rates “won’t be coming down quickly enough to provide meaningful relief.”
Prediction: Mortgage rates to hit 6.5%
Ryan Ratliff (C), Real Estate Sales Associate with Re/Max Advance Realty, shows Ryan Paredes (L) and Ariadna Paredes a home for sale on April 20, 2023 in Cutler Bay, Florida.
Joe Raedle | Getty Images
“Mortgage rates have gone up — not down — since the Fed began cutting interest rates in September,” McBride said.
McBride now expects mortgage rates to “spend most of the year in the 6% range,” he said, “with a short-lived spike above 7%.”
The 30-year fixed-rate mortgage could end the year at 6.5%, he projected. But since most people have fixed-rate mortgages, their rate won’t change unless they refinance or sell their current home and buy another property.
Prediction: Auto loan rates edge down to 7%
When it comes to their cars, consumers have been facing bigger monthly payments, thanks to higher vehicle prices and elevated interest rates on new loans.
While anyone planning to finance a new car could benefit from lower rates to come, affordability concerns won’t change significantly.
Five-year new car loan rates are expected to fall to 7% from 7.53%, while four-year used car financing costs could drop to 7.75% from 8.21% by the end of the year, according to McBride.
Prediction: High-yield savings rates dip 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.
Even though those rates are falling, “they’re coming down slowly, and they’re still well 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 the top-yielding one-year and five-year CDs will fall to 3.7% and 3.95%, respectively.
“That adds up to a pretty attractive environment for savers,” McBride said.