Find out what are the experts predictions for interest rate in 2025 and how it affects you!
Near the end of 2024, the Federal Reserve lowered interest rates three times, cutting a full percentage point from the federal funds rate since September. This trend is expected to continue into 2025, but at a slower pace. During December meeting, the Federal Reserve officials announced that they reduced their expected rate cuts for 2025 to two, down from four, assuming quarter-point increments.
“Robust U.S. economic data heightened concerns that the Federal Reserve may see little scope for cutting rates in 2025”, noted Solita Marcelli, Chief Investment Officer Americas for UBS Global Wealth Management, in a research note.
Although the Fed has indicated two rate cuts, Greg McBride – Chief Financial Analyst at Bankrate – forecasts up to three, which could lower the benchmark rate to between 3.5% and 3.75%. While this is not the direct rate consumers pay, it influences borrowing and saving rates across the economy. As a result, Americans may experience slightly lower financing costs.
“Rates were abnormally low for the better part of 15 years, and they’ve been abnormally high for the last two. “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”, said McBride.
Here’s how different financial products areexpected to be impacted in 2025:
Credit Card Rates Fall to 19.8%
Since the Federal Reserve began cutting rates, credit card interest rates have only slightly decreased. The average annual percentage rate (APR) is projected to dip to 19.8% by the end of 2025, down by about half a percentage point from current levels, according to McBride.
Cardholders may notice the change within a billing cycle or two, but those carrying balances month-to-month should continue focusing on paying down debt, McBride advised. The drop in rates won’t be enough to “provide meaningful relief”, he added.
Mortgage Rates to Stabilize at 6.5%
“Mortgage rates have gone up – not down – since the Fed began cutting interest rates in September”, McBride pointed out.
He predicts mortgage rates will remain in the 6% range for most of the year, with occasional spikes above 7%. By year-end, the 30-year fixed-rate mortgage could settle at 6.5%. However, since most homeowners have fixed-rate mortgages, these changes will only affect those looking to refinance or purchase new homes.
Auto Loan Rates Decline to 7%
Higher vehicle prices and elevated interest rates have resulted in larger monthly car payments for consumers. While auto loan rates are expected to decline slightly, affordability concerns will persist. According to McBride, by the end of 2025, rates for five-year new car loans are projected to drop to 7% from 7.53%, while four-year used car loan rates may fall to 7.75% from 8.21%.
High-Yield Savings Rates Dropping Below 4%
Online savings accounts have offered attractive returns in recent years, with many paying close to 5%. However, these rates are expected to gradually decline. Despite these declines, savings rates will likely remain higher than inflation, making them an appealing option for savers, McBride said.
Top-yielding savings accounts and money market accounts may decrease to around 3.8% by the end of 2025, while the best one-year and five-year certificates of deposit (CDs) could fall to 3.7% and 3.95%, respectively.