Fed Funds Rate Cut a Double-Edged Sword

Mortgages

The federal funds rate has very little correlation to interest rates on 30-year fixed-rate mortgages, in part, because of the longer-term nature of the loan. (For more on this, read here.) Similar to fixed-rate mortgages, or FRMs, adjustable-rate mortgages, or ARMs, are only indirectly affected by changes in the federal funds rate. However, rates on ARMs do respond differently to market forces than FRMs, and changes in the funds rate can have a bigger impact on ARMs than FRMs.

Cash

Unfortunately, a drop in the federal funds rate usually leads to a decline in interest rates paid on savings accounts, money-market accounts and certificates of deposit, or CDs. When banks make less on the money they lend out, they offer less on the money you lend them. If you have a fixed interest rate on a CD, for example, the federal funds rate cut will have no effect. As with consumer loans, not all banks will change their rates by the same amount, so shop around to find the best deals.