The Fed keeps interest rates steady. What does that mean for your money?

The Federal Reserve announced Wednesday that it will leave interest rates unchanged, delaying the possibility of a rate cut as well as any relief from higher borrowing costs.

Overall, expectations have been growing that the Fed is implementing a soft landing, but this offers little solace to Americans struggling with high-interest debt.

“Now there may be fewer interest rate cuts on the horizon after hotter-than-expected inflation reports sent a message that we are moving in the right direction, but we are not there yet,” said Greg McBride, chief financial analyst at the Bank of England. Bankrate.com.

For consumers, this means “a very slow downward drift in savings rates but no fundamental change in borrowing costs for credit cards, auto loans or home equity lines of credit,” McBride said.

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Inflation has been an ongoing issue since the Covid-19 pandemic, when prices rose to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that raised its benchmark interest rate to its highest level in more than 22 years.

The federal funds rate, set by the U.S. central bank, is the interest rate at which banks borrow and lend to each other overnight. Although this is not the rate that consumers pay, the Fed's moves still affect the borrowing and saving rates they see every day.

The sudden rise in interest rates has caused consumer borrowing costs to skyrocket, putting many families under pressure.

Even with some interest rate cuts on the horizon later this year, consumers will not see a significant decline in their borrowing costs, according to Columbia Business School economics professor Brett House.

He said, “Borrowing costs will remain relatively limited in real terms as inflationary pressures continue to gradually decline.”

From credit card and mortgage rates to car loans and savings accounts, here's a look at where these rates could go in 2024.

Since most credit cards have a variable interest rate, there is a direct connection to the Federal Reserve Bank's standard. In the wake of the interest rate hike cycle, the average credit card rate has risen from 16.34% in March 2022 to nearly 21% today — an all-time high.

With most people stressed by rising rates, balances are higher and more cardholders are taking on debt from month to month compared to last year.

Annual percentage rates will start to fall when the Fed lowers interest rates, but even then will only ease very high levels. With only a few quarter-point cuts possible, the APR will still be around 20% by the end of 2024, according to Ted Rossman, senior industry analyst at Bankrate.

“If the average credit card rate fell one percentage point from its current benchmark of 20.75%, most cardholders would barely notice,” he said.

Although interest rates on 15- and 30-year mortgages are fixed, tied to Treasury yields and the economy, anyone shopping for a new home loses a significant amount of purchasing power, due in part to inflation and the Fed's policy moves.

But rates have already been lower since hitting 8% in October. Now, the average rate for a 30-year fixed-rate mortgage is closer to 7%. That's up from 4.4% when the Fed started raising interest rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

Doug Duncan, chief economist at Fannie Mae, expects mortgage rates to end this year at 6.4%, but that won't provide much support for potential homebuyers.

“The housing market will likely continue to face the dual affordability constraints of rising home prices and rising interest rates in 2024,” Duncan said. “The problem is still supply. If interest rates go down and demand goes up and there's no supply, the only thing that happens is house prices go up.”

Although car loans are fixed, payments became larger because car prices were rising along with interest rates on new loans, resulting in lower monthly payments.

The average interest rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising interest rates, according to Edmunds. However, competition among lenders and more incentives in the market have begun to take some of the benefits out of the cost of buying a car recently, said Evan Drury, director of insights at Edmunds.

Once the Fed lowers interest rates, it gives people more breathing room, Drury said. “Last year was ugly all around. At least there's an upside this year.”

Federal student loan rates are also fixed, so most borrowers are not immediately affected. But undergraduates taking out new direct federal student loans now pay 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

Private student loans tend to have a variable interest rate tied to Treasury bonds or another price index, meaning these borrowers actually pay more in interest. However, the amount varies depending on the standard.

For those struggling with existing debt, there are ways federal borrowers can ease their burdens, including income-based plans with $0 monthly payments, economic hardship and unemployment deferrals.

Private loan borrowers have fewer options for forgiveness — although some may consider refinancing once interest rates start to fall, and those with better credit may actually qualify for a lower interest rate.

While the central bank has no direct influence on deposit interest rates, returns tend to be tied to changes in the target federal funds rate.

As a result, interest rates on higher-yielding online savings accounts have made big moves and now pay more than 5% — above the rate of inflation, a rare win for anyone building an emergency savings account, McBride said.

He said that since these rates have likely reached their ceiling, it is a good time to secure certificates of deposit, especially for maturities longer than one year. “There's no incentive to wait for something better because that's not the way the wind is blowing.”

Currently, the average yield on one-year CDs is 1.73%, but higher-yield CD rates pay more than 5%, which is as good as or better than higher-yield savings accounts.