A Fed Rate Cut Is Finally Here. 4 Things You Should Do Right Now

There was a collective sigh of relief when, on Sept. 18, the Federal Reserve cut the federal funds rate by half a percentage point. After more than a year of higher interest rates, knowing that lower rates are on the way is welcome news. But what will those lower rates do for you? How can you benefit?

If you're wondering about your next steps, these four suggestions can help you position yourself for when rates drop even more and leave more money in your checking account at the end of each month.

1. Pay down debt

We're no Nostradamus, but the Federal Reserve has signaled that it expects two more rate cuts this year -- one in November and one in December. And according to Fitch Ratings, analysts expect four more cuts throughout 2025. While we can't say for sure how low that would make consumer interest rates, we can tell you that preparing for it now puts you in a better position to take advantage of those rates when they arrive.

If you carry any high-interest debt, now is the time to pay it down. We're not suggesting that you trade old debt for new. In fact, once you pay off the old debt, the ideal situation would see you remain debt free. However, if that's not a reality, here are two ways paying off current debt can help.

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Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of January 4, 2025. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of January 4, 2025. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

1. Paying down debt lowers your credit utilization ratio, and lowering that ratio helps boost your credit score.
2. Getting rid of old debt simplifies borrowing money when you genuinely need it. Imagine your sump pump backs up, and your basement floods. However, your standard HO-3 policy excludes sewer and sump pump backups, and you're looking at a $5,000 bill for cleanup and repairs. Let's say you take out a personal loan or put the repairs on a credit card. With old debt gone, you should find it easier to make payments. Equally important, you should score a lower interest rate.

The less debt you carry, the easier it'll be to borrow money when you need it. If you need help getting started, a debt payoff app can lead the way.

2. Build up savings

If analysts are correct, we'll have experienced seven rate cuts by the end of next year. Although we can't say exactly what the average mortgage rate will be or how much you'll pay to finance a car, it's safe to assume that credit will be much less expensive than it is now.

If you've been putting off a big purchase, like a vehicle, land, RV, boat, or new home, now is the perfect time to build up your savings account. It's not only essential to have enough cash put away to cover emergencies but also to have enough to make a healthy down payment on your next big purchase.

Having a hefty down payment available helps in two ways:

1. Improves your odds of loan approval because lenders like it when borrowers have "skin in the game."
2. Lowers your monthly loan payments, freeing up money to do other things, like invest for retirement.

Looking for the perfect account to house your down payment or other savings? Click here to see our curated list of the best high-yield savings accounts and open one today.

3. Make sure your credit report is in good shape

Imagine having an emergency that leads you to apply for a personal loan. Errors on your credit report could impact your credit score and, ultimately, your ability to land a loan.

When Consumer Reports and WorkMoney had 4,300 people check their credit reports, 44% found errors. Because your overall credit score is based on information found in your credit reports from the big three reporting agencies -- Equifax, TransUnion, and Experian -- any little mistake can make a difference.

You can order a free copy of each of your reports through AnnualCreditReport.com. If you find any mistakes, no matter how small, dispute them with the reporting agency. It has 30 days to prove their information is correct or remove it from your report.

If there's any chance you're going to want or need access to credit in the next year or two, now is a great time to make sure everything is in order with your credit reports.

4. Lock in a CD rate

One drawback of a fed rate cut is lower rates on deposit accounts, like certificates of deposit (CDs). That said, it's still possible to find a CD rate of over 4%. It may not be as high as it once was, but it's still much higher than we usually see.

Ready to earn a solid return in an FDIC-insured CD? Click here for Motley Fool Money's round-up of the best CD rates to pick one.

Each time the Fed drops the federal funds rate, financial institutions tend to lower the APY on CDs and other deposit accounts, such as high-yield savings accounts and money market accounts (MMAs). In fact, banks and other financial institutions don't always wait for the Fed to make an actual drop. Sometimes, just the rumor of an upcoming decrease in the rate is enough to spur them to reset their rates.

If you're looking for a safe place to put money you don't need right away, now is the time to take advantage of rates that remain historically high.

No one can see the future, but we can predict patterns based on generations of U.S. financial maneuvers. The significant advantage of looking back on history is the ability to make the kinds of moves most likely to benefit us.