By Jessica Duncan, AVP Research & Insights
As expected in last week’s meeting, the Federal Reserve announced its first rate cut in over four years, surprising many with the more significant decrease of 50 basis points. This decision will provide consumers with some relief through reducing borrowing costs on variable-rate products such as mortgages, credit cards, and auto loans. We can anticipate an increase in home lending marketing as a result, but what other effects will this rate cut have on the financial services marketing landscape? In this month’s commentary, we will explore the anticipated responses from financial institutions and product positioning following the decrease in the prime rate.
Home Lending
Mortgage rates, which are tied to other market factors in addition to the Fed’s rate, were already being marketed as “dropped” or “lowered” in the weeks leading up to the September rate cut. However, some lenders had campaigns tee’d up and ready to go once the announcement was made on September 18, 2024. On the day, Upstart encouraged prospects to check rates online and provided several FAQs within the email. One day later, Mr. Cooper released an email announcing special refinance rates for one week only with the headline “The Fed Dropped Rates, WE’RE DROPPING OURS EVEN MORE.” Meanwhile, SoFi used an image of a man holding a giant key with the headline “Opportunity is knocking. It’s lower rates.” Other lenders, like M&T Bank, communicated with customers ahead of the Fed’s scheduled meeting, informing them that a rate cut may be coming. Notably, M&T Bank provided resources to help customers be prepared for the potential of a lower rate environment. The resources included links to a loan calculator, a homebuyer’s guide, and information on First-Time homebuyer programs.
Auto Lending
Industry experts anticipate that auto loan rates will experience the slowest change over time, a viewpoint currently supported by the decline in auto loan marketing captured by our panel in 2024. We could potentially see an increase in marketing efforts toward the end of the year as lower rates align with year-end sales aimed at clearing inventory. Despite high rates, Capital One has remained a top marketer of auto loans in 2024, actively promoting its Auto Navigator tool to existing customers. Between September 18 and September 21, 2024, Competiscan noted eight distinct email designs released as invitation to apply campaigns, as well as pre-qualified and pre-approved offers. This steady presence and built-up brand recongition could pay off when consumers are ready to move forward with a car purchase.
Credit Cards
As most consumer credit cards carry variable interest rates, consumers can expect a small decrease in the interest charged on revolving balances. Although the APR change may be minor, it will be interesting to see whether card issuers choose to highlight this adjustment out of goodwill, as there is no legal obligation to do so. Special rate reduction offers on new purchases are a common tool used to award those in good-standing with a reduced rate for set period of time. Given historically high outstandings and rising delinquency rates, even those offers have become less frequent in the past year. Therefore, it’s not likely that we will see much impact on the marketing of credit cards, both acquisition and existing cardholder engagement following this first rate reduction.
Personal Loans personal loan rate discount
Some lenders may continue to lean towards promoting personal loans. A prevalent marketing strategy in today’s climate emphasizes the potential of personal loans to consolidate highinterest credit card debts. Last week, SoFi introduced a personal loan rate discount through email , starting with the line: “Paying down debt? Upgrading your home? Or wisely avoiding credit cards for a significant life expense? Now is the ideal time to achieve this with a SoFi Personal Loan.” This messaging not only illustrates various ways consumers can benefit from obtaining a personal loan, but also conveys the decision as a smart choice over relying on a credit card.
High-Yield Deposits
As interest rates decrease, the appealing consumer rates, or APYs, on high-yield deposit accounts, like Savings, MMAs, and CDs decline as well. Competiscan observed the trend emerging over the past few months, with new CD specials increasingly offering shorter terms. We anticipate this trend will persist, and despite rates still being favorable, we could see a gradual reduction in acquisition marketing aimed at deposit products. Additionally, there has been a noticeable shift in the messaging tactics used for deposit offers, emphasizing a heightened sense of urgency to take action. Raisin, an online deposit marketplace, explained in several recent emails that locking in a longer CD now is a consumer’s best option in preparation for future rate cuts. Since the rate cut, campaigns promoting CDs have included phrases, like “secure this rate today,” “act now,” and “Get it while it’s great,” as demonstrated by Synchrony and its online display advertisment for a 4.80% 12-month CD.
CD Maturity
Regardless of the movement of the prime rate, an influx of shortterm CDs are starting to expire. We would expect that financial institutions have reviewed their CD maturity contact strategy and have implemented a plan best aimed at informing customers of their upcoming maturity date and renewal options. While a letter is still the standard communication approach, some institutions have added a series of emails to ensure the account balances are retained at their institution. Also, Competiscan has observed special rate offers to encourage customers to renew. Notably, Byline Bank was seen enticing a customer to bring over additional funds ($25K minimum deposit) in order to qualify for a special, higher 5.25% APY 7-month CD during their maturity window.
Current Savings Customers
Another area of impact is the current interest rate for customers with high-yield savings accounts. According to Competiscan, the average Savings APY peaked at 4.58% in March 2024. Then, due to off-cycle rate reductions implemented by financial institutions, the average rate decreased to 4.25% by August 2024. We should anticipate that the average advertised APY for HIgh-Yield savings will fall below 4% once the effects of the rate cut are taken into account
How are financial institutions announcing changes in rates?
Companies have included rate change notices within customer deposit statements, while others have opted to send email notifications. Recently, Credit Karma took a straightforward and conversational approach, explaining the reason behind the change and that no action was necessary. A common marketing tactic used is to remind the customer that the current rate remains above the national average. For instance, American Express used the statement “This rate is well above the national average” to give peace of mind and also discourage customers from researching alternative product options.
A week after the initial rate cut, the overall market response was rather muted. However, with expectations of another rate cut in November and continuing into 2025, we expect companies to gain a clearer understanding of how and when to react. As always, financial service marketers will need to adapt to the evolving economic climate and implement marketing strategies and product offerings that align with consumer needs.