INTEREST RATE CUTS BY THE FEDERAL RESERVE (the Fed) in late 2025 signaled a new era of declining rates.  “Unless inflation reignites, we currently expect two additional cuts in 2026,” says Matthew Diczok, head of Fixed Income Strategy for the Chief Investment Office, Merrill and Bank of America Private Bank.

What could that mean for your finances? While declining rates aim to stimulate growth and hiring in the wider economy, they could affect everything from your cost of borrowing to how you save and invest. While the Fed rate cuts may not immediately be reflected in the interest rates available to the consumer, as the rate-easing cycle continues, the following moves might be worth considering. The timing of any decisions you make may depend on where you believe rates are headed next and your personal situation, Diczok says. An advisor can help you determine whether adjustments make sense for you.

4 ways lower rates could affect your finances

Mortgage rates have come down incrementally in 2025,¹ and further declines could make homeownership a bit more affordable.

What you can do: If you’ve been waiting on the sidelines, declining rates could provide an opportunity to explore ownership, Diczok says. And for existing mortgage holders, refinancing could potentially offer lower rates or shorter loan terms. A drop of 1 to 2% below your current mortgage rate could make refinancing attractive, depending on how much longer you plan to live in the home. Whether buying or refinancing, of course, it’s important to weigh the variables and costs of buying or refinancing, as well as the likelihood of future rate cuts, before making any decisions, he adds.

Fed rate decisions apply directly to the federal funds rate, the rate banks charge one another for overnight loans. Indirectly, cuts tend to cascade through the economy, bringing down the rates for auto and personal loans and credit cards.

What you can do: If you have a number of debts at higher rates, as rates come down, you could think about paying them off. For example, you might use a line of credit, such as a home equity line of credit (HELOC), which uses your home as collateral, or a Loan Management Account (LMA), offered by Bank of America, that uses your investments as collateral. That way, the interest you pay would likely be lower than what you’re currently paying (especially as rates drop lower) and you’d only have one bill every month, instead of multiple payments.  But keep in mind that because lines of credit need collateral, it’s important to make sure you can comfortably make the regular payments, Diczok advises.

“The flipside of lower borrowings costs is that you earn less interest from savings accounts and money market accounts when rates fall,” Diczok says. “Cash is especially sensitive to lower rates and could lose ground to inflation,” if the rate of rising prices approaches or surpasses the earnings you’re getting on cash.

What you can do: You might look into moving excess cash — money you don’t need for daily expenses — from savings accounts to longer-term CDs or other cash management solutions offering higher rates. As one example, Bank of America’s Preferred Deposit may offer a competitive yield along with security and convenience. Now is also a good time to review your bond holdings, Diczok suggests. Shifting short-term bonds or excess cash into longer-term bonds could enable you to lock in higher income before rates potentially decline further.

Declining interest rates are generally favorable for stocks, Diczok says. Lower borrowing costs can make it easier for companies to expand and grow, and a boost in hiring can give consumers confidence to keep spending.

What you can do: Review your equity holdings with an eye toward potentially adding exposure to industries like housing, automotive and financials, which could see a spike in demand as consumer borrowing costs decline.

Dividend-paying companies in industries such as utilities also tend to perform well during times of lower interest rates, Diczok says. In addition, lower rates could create potential opportunities for smaller companies, giving them greater access to the capital they need for growth.

Keep in mind that interest rates are just one of many factors that play into your financial decisions, Diczok cautions. Unforeseen geopolitical events or economic shifts can create stock market volatility or impact the housing market and the economy in general. Likewise, much depends on your personal financial situation, including your debts, liquidity, investments and personal goals. If you work with an advisor, they can help you consider what a potential declining rate environment could mean for you.