Towards the end of 2024, interest rates fell as the Federal Reserve cut rates three times, shaving a full percentage point off the federal funds rate since September. This trend is likely to continue in 2025.
But with inflation still above the Fed's 2 percent target, a strong job market and a new government, the central bank has already indicated it will be slower in cutting interest rates next year.
Federal Reserve officials have reduced their forecast for expected cuts in 2025 from four to two, estimating quarter-point increments, according to minutes from their December meeting.
“Reliable U.S. economic data added to concerns that the Federal Reserve may see little room for rate cuts in 2025,” Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, wrote in a research note.
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Experts expect the Fed to keep interest rates on hold at its meeting on January 28 and 29 and make only a few rate cuts throughout the year. Given that, most Americans can expect their borrowing costs to fall, but not by much, said Greg McBride, chief financial analyst at Bankrate.
“Interest rates have been unusually low for almost 15 years and in the last two years they have been unusually high,” he said. “They are falling, but they will settle at a level that is higher than what we saw before 2022.”
Although Fed officials have announced two cuts, McBride expects up to three cuts later this year, pushing the key interest rate to between 3.5% and 3.75%. Although this is not the interest rate consumers pay, the Fed's actions still impact the borrowing and savings rates consumers see every day.
From mortgage rates and credit cards to car loans and savings accounts, here are his predictions for interest rates in the coming year:
Forecast: Credit card interest rates fall to 19.8%
Since the central bank began cutting interest rates, the average credit card interest rate has only fallen slightly from extremely high levels.
In the future, the effective annual interest rates are unlikely to improve significantly. McBride predicts that the average credit card APR will fall to 19.8% by the end of 2025, a decline of about half a percentage point from current levels.
Cardholders typically notice the impact within one or two billing cycles. But for those who carry a balance from month to month, “borrowers need to move forward with their debt payoff efforts,” McBride said. Interest rates “are not being reduced quickly enough to provide meaningful relief.”
Forecast: Mortgage interest rates reach 6.5%
Ryan Ratliff (center), real estate salesperson with Re/Max Advance Realty, shows Ryan Paredes (center) and Ariadna Paredes a home for sale on April 20, 2023 in Cutler Bay, Florida.
Joe Raedle | Getty Images
“Since the Fed began cutting rates in September, mortgage rates have gone up — not down,” McBride said.
McBride now expects mortgage rates “to remain in the 6% range for most of the year,” he said, “with a short-term spike above 7%.”
The 30-year fixed-rate mortgage could be 6.5% at the end of the year, he predicted. However, because most people have fixed-rate mortgages, their interest rate won't change unless they refinance or sell their current home and buy another property.
Forecast: Car loan interest rates fall to 7%
When it comes to their cars, consumers can expect higher monthly payments thanks to higher vehicle prices and higher interest rates on new loans.
While anyone planning to finance a new car could benefit from lower interest rates in the future, affordability concerns will not change significantly.
Interest rates on five-year new car loans are expected to fall from 7.53% to 7%, while financing costs on four-year used cars could fall from 8.21% to 7.75% by the end of the year, McBride said.
Forecast: High interest savings rates fall below 4%
According to McBride, the highest-yielding online savings accounts in recent years offered the best returns in over a decade and still paid nearly 5%.
Even though those interest rates are falling, “they are coming down slowly and are still well above inflation,” McBride said.
McBride predicts that the highest-yielding savings accounts and money market accounts could reach 3.8% by the end of 2025, while the highest-yielding one-year 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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