How the Fed interest-rate cut may affect you

Will I earn less on my bank savings?

If you have money in interest-earning bank accounts or certificates of deposit, you can expect to be "as disappointed as Cubs fans," said Greg McBride of Bankrate.com in North Palm Beach, Fla. "They're continuing to take it on the chin every time the Fed cuts rates."

Bank depositors have benefited lately from intense competition for their money, because the credit crunch has made it difficult for banks to get funds elsewhere. That competition remains "spirited," but the Fed's action will probably result in lower rates, said Keith Gumbinger, vice president of rate tracker HSH Associates in Pompton Plains, N.J.

"Instead of promoting an 18-month CD at 4%, they may compete only at 3.5%," Gumbinger said.

I heard the prime rate went down to match the Fed cut. How will that affect my loans?

After the Fed lowered its benchmark rate by half a percentage point, to 1.5%, most banks followed as usual by dropping their prime rate by the same amount, to 4.5% from 5%. That could mean an instant rate reduction for many borrowers with credit card debt or a home-equity line of credit tied to a bank's prime rate.

Unfortunately, some credit card holders will see no benefit because of interest-rate floors built into their card agreements, McBride said. A card that charges the prime rate plus 6 percentage points might have a floor of 11%, for example, keeping it from dropping to the 10.5% level it otherwise would have reached with the Fed cut.

Will I save money on my adjustable-rate first mortgage?

These mortgages typically fluctuate based on something other than the prime rate, and the two most popular indexes used to calculate these rates have behaved strangely in recent weeks and months because of the credit crisis.

The yield on one-year Treasury securities is used to calculate about a third of adjustable-rate mortgages, and the Libor -- the rate that banks charge other banks for loans -- is used on about half.

As panicked investors recently moved money into short-term Treasuries, the yield on the one-year T-bill tumbled to 1.18% on Tuesday from above 2% in early September. After the Fed rate cut, the yield rebounded to 1.24%. And it's hard to say where the yield will go.