How The Fed Rate Increase Will Actually Impact You (And It Will)

Olivia Roos
September 28, 2018

This week, the Federal Reserve approved another rate hike, following a trend of steadily increasing rates since 2015, taking the fed rate to a range of 2% to 2.25%.

What will it ultimately mean?

Generally, this will make savings accounts more profitable while it will hike up the price of interest rates for various forms of credit. Here’s our advice for how to handle the fed rate hike in terms of both savings and credit.

Savings

A higher federal reserve generally means better interest rates on your savings account. Seek out a bank that will offer you a higher interest rate, preferably;y 2% or above. When you have a 2% interest rate and say $10,000 in your savings account, then your annual percentage yield is going to be $200.

Certificates of Deposits (CD)

CD interest rates have been increasing even faster than savings’ as the fed rate has increased, moving up .19 percentage points in the past year.  And both one to two year duration CDs will be the most profitable, so it would be a smart strategy to seek out one to take advantage of these profitable interest rates.

Credit Cards

With credit card debt surpassing $1 trillion in 2017, the increased fed rates will likely not make things better for Americans already struggling to pay off credit card debt. According to Wallet Hub, the rate increase will cost credit card users an additional $1.6 billion in extra finance charges for 2018.

What you should do before you feel the effects of the rate increase is look for a better credit card rate, preferably one with zero APR. This is easier said than done, though.

Also, you should start to put the pedal to the metal in paying down your credit card balance.

“The best thing that cardholders can do is make the rate hike a moot point by paying the balance in full every month,” said Matt Schultz the industry analyst at Compare Credit Cards.

Mortgages

Long term fixed mortgage rates have also experienced a steady increase with the growing federal rate. If you have an adjustable-rate mortgage (ARM) refinance it to a lower rate than what your ARM will change to later in the year. Then if you have a Home Equity Line of Credit (HELOC), see if you can freeze your outstanding balance or transform it into a fixed-rate home equity loan.

Auto Loans

In general, the changing fed rate won’t affect auto loans too drastically. Still exercise caution when car shopping, and make sure your credit score is in good shape so you don’t get hiked up fees and perhaps opt for a pre-owned vehicle which is always cheaper in the long run.

Student Loans

There are two types of student loans, federal and personal loans. Most students just have federal loans which have a fixed rate, but for students that also took out personal loans, those rates are expected to increase. If you have both personal and federal loans, try and pay your personal loan off faster or consider refinancing your personal loan at a lower rate.

Personal Loans

As mentioned, personal loans that are not attached to a fixed rate are likely see their interest rates get hiked. If you have a personal loan currently try to refinance it to a lower rate and if you are looking to get a personal loan make sure you do your shopping to make sure you get as low a rate as possible before the inevitable increase later this year.

Feature Image: Wikipedia

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