Here's How Your Wallet Is Impacted if Interest Rates Go Down in 2024

After raising interest rates throughout 2022 and 2023, the Fed appears likely to go in the opposite direction, and cut interest rates in 2024. Interest rates are the price of money. When interest rates go down, this can have big spillover effects into the wider economy -- and for your personal finances.

When interest rates go down, there tend to be a few "winners" and "losers" in the economy. Savers will typically have to accept lower APYs on savings accounts and CDs, for example. But in other aspects of your financial life, lower interest rates can be good news.

Let's look at what it means for your personal finances if the Fed follows through with interest rate cuts in 2024.

1. Your costs of borrowing will go down

Probably the first noticeable effect of the Fed lowering interest rates is that it will cause the costs of borrowing to decline. Lower interest rates mean that money gets cheaper. If interest rates decline by 0.75%-1.50% in 2024, you're likely to see these numbers reflected in home mortgage rates, car loan APRs, and lower interest rates for personal loans and other lines of credit.

Many Americans have been feeling the financial crunch in 2024 as their borrowing costs have gotten higher. High interest rates have made it harder for people to afford to buy a house, or get an auto loan with affordable monthly car payments.

Lower interest rates are good news for anyone who needs to borrow money or pay off debt. Here are a few financial moves that might be good to make in 2024 if interest rates go down:

• Buying a home: Lower interest rates could help you get a more affordable mortgage.
• Getting a new car: If your old car is starting to burn oil and pop gaskets, lower interest rates can help you get a nicer ride at an affordable monthly payment.
• Improving your home: If you want to make long-delayed home renovations and need a lower interest rate on a home equity line of credit, the Fed might be ready to help.
• Paying off debt: Tired of high-interest credit card debt? Lower interest rates might make a debt consolidation loan cheaper so you can pay off all your debt while saving money.

For all these reasons, 2024 could be a good year for your financial goals.

2. Your investment portfolio might increase in value

There is no such thing as a "sure thing" in the stock market, and past performance is no guarantee of future results. However, lower interest rates sometimes can lead to an increase in the price of the stocks in your investment portfolio.

When money gets cheaper, more investors start looking for higher returns than they can get by leaving their cash in a low-yield bank account. Lower interest rates can spur investors to take more financial risks. "If cash isn't earning much yield," this line of thinking goes, "we might as well invest in riskier assets like stocks, in hopes of earning higher returns." More demand for stocks causes stock prices to go up.

Again: no one knows what's going to happen on Wall Street from one day to the next. This is not advice to try to time the market, or to sink all your money into stocks. The stock market can be volatile, unpredictable, and confounding. But in general, lower interest rates in 2024 could be good news for stock investors. A few Fed rate cuts could give a lot of people a sense of relief and breathing room to put more money into stocks.

3. Your overall personal finances might improve

Why was the Fed raising interest rates in 2022 and 2023? To fight inflation. By making money more expensive, the Fed was hoping to cause people and businesses to spend and invest less, to reduce the money supply, to drive down prices. As of December 2023, inflation is getting better. Consumer prices are stabilizing. There are signs that the economy is heading for a soft landing, where inflation gets better, but the job market stays strong -- and that's good news for your paycheck.

If the Fed cuts interest rates in 2024, that's a good sign that people are continuing to see more affordable prices at the gas pump and the grocery store. By cutting interest rates, the Fed would be sending a signal to businesses that it's safe to borrow and invest in growth again. Lower interest rates could help make life easier for small businesses, and drive big companies to hire more people, build new factories and facilities, and invest in innovative new products and technologies.

Even if you're not looking to borrow money or buy stocks in 2024, lower interest rates could still improve your personal finances in surprising, indirect ways. Your next pay raise, bonus, or new job offer could be a happy side effect of lower interest rates in 2024.

Bottom line: 2023 was a tense, unhappy year for many Americans, in part because of high inflation and high interest rates. People's savings have been depleted and their borrowing costs have gone up. If the Fed cuts interest rates in 2024, there is hope on the horizon for many people's personal finances to get better. No one knows what the future holds, but there are positive signs of a soft landing in the economy that would be good news for all of us.