What Another Federal Reserve Rate Hike Means for You

  • The Federal Reserve is expected to raise interest rates by a quarter percentage point at its policy meeting this week.
  • Lending rates are already at new highs.
  • Here’s a breakdown of how the central bank affects your monthly expenses and savings.

Most credit cards come with a variable rate Direct link to central bank key rate.

After a long period of rate hikes, the average credit card rate now averages more than 20% – an all-time high, while balances are high and half of credit card holders carry credit card debt month to month. A Bank account statement.

“Another rate hike from the Fed means today’s sky-high credit card interest rates will rise further in the very near future,” said Matt Schulz, chief credit analyst at LendingTree. Cardholders should expect interest rates on their current cards to go up in the next billing cycle or two, he said.

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Although 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone buying a new home has lost significant purchasing power, due to inflation and central bank policy moves.

The average rate for a 30-year, fixed-rate mortgage is currently 6.48%, according to Bankrate, down slightly from November’s peak but still higher than a year ago.

“Although borrowers can save money compared to what they paid for a mortgage a few months ago, they’re going to spend more than if they bought a home earlier last year,” he said. Jacob Channell is Senior Economist at LendingTree.

“Overall, today’s housing market is just as difficult for many people to enter and navigate.”

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They’re going to be shelling out even more than when they bought a house earlier last year.

Jacob Chanel

Senior Economic Analyst at LendingTree.

Adjustable-rate mortgages, or ARMs, and home equity loans, or HELOCs, are tied to the prime rate. When the federal funds rate rises, the prime rate, as well as these rates, follow suit. Most ARMs adjust once a year, but a HELOC adjusts immediately. Already, the average rate on a HELOC is up to 7.99%, according to Bankrate.

Although auto loans are fixed, the payments are getting bigger as the cost of all cars increases along with the interest rates on new loans.

The average interest rate on a five-year new car loan is now 6.58%, According to the bank.

Keeping up with high spending has become a challenge, and research shows that borrowers are falling behind on their monthly loan payments.

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Federal student loan rates are also fixed, so most borrowers are not immediately affected by rate hikes. Interest rates on federal student loans taken out in the 2022-23 school year have already risen to 4.99%, and loans issued after July 1 will be even higher. Interest rates for the coming academic year will be based on the auction of 10-year Treasury notes later this month.

For now, anyone with an existing federal student loan will benefit from 0% rates until the payment freeze ends, which the U.S. Department of Education expects to happen sometime this year.

Private student loans have a variable rate tied to LIBOR, prime or Treasury bill rates — meaning that as the central bank raises rates, those borrowers will also pay more interest. However, how much varies with the scale.

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Although the central bank has no direct influence on deposit rates, the yield target is linked to changes in the federal funds rate. The Savings account rates at some major retail banksIt was close to rock bottom during most of the covid pandemic and now averages up to 0.39%.

Thanks, in part, to lower overhead costs, high-yield online savings account rates are as high as 4.5%, according to Bankrate.

However, if this is the Fed’s last increase, deposit rate hikes are likely to slow down, according to Ken Dumin, founder of depositaccounts.com.

But “it’s never too late,” said Greg McBride, chief financial analyst at Bankrate.com. “We don’t see much in the way of improvement, but there is still a substantial benefit,” he said of the move to a high-yield savings account.

“If you’re not benefiting from higher rates, there’s no point in staying where you are.”

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