A half point increase doesn’t sound like a lot, but it will have an impact on your finances.
The Federal Reserve raised interest rates Wednesday in a move to fight inflation and tame the economy. The Fed’s move could have a direct impact on your bank account, mortgage and credit cards.
Consumers are likely to feel the impact most on debt with variable rates, such as credit cards and home equity lines of credit. The reason is that those debts are directly tied to the prime rate, which is set by the Federal Reserve. When the Fed raises the federal funds rate, it signals to lenders and creditors that they need to charge a higher interest rate to make up for the increased risk of lending.
Mortgage rates are already rising, which is hurting home sales. And auto loan rates are also expected to rise. The Fed’s move also means that savers will be able to earn more on their savings accounts and certificates of deposit.
The good news is that the Fed is still allowing Americans to borrow at very low rates, which should help ease the impact of these rate hikes. But even a single interest rate increase can take a big bite out of your wallet, because every 0.25% boost to the federal funds rate adds an extra $25 in annual interest to $10,000 in debt. That’s why it’s important to keep track of your debt and stay current on the Fed’s rate moves.