Interest rates: What the Fed hike means for you
“Get ready to pay more to borrow,” said Nelson Schwartz in The New York Times. The Federal Reserve raised its benchmark short-term interest rate by a quarter-point last week, a decision consumers will feel immediately in the form of higher credit card payments. Rates on auto loans, home equity loans, and mortgages “will also creep higher” over time, especially if the Fed follows through on plans to raise rates two more times this year. But for now, the impact of a quarterpoint rate hike will be relatively small. Credit card costs move in tandem with the federal funds rate, which means the typical credit card holder will see his or her annual interest charges rise to 16.75 percent from 16.5 percent. That amounts to paying about $42 extra per year on the typical balance of nearly $17,000.
Mortgage rates are a different story, said Gail MarksJarvis in the Chicago Tribune. “They do not move automatically based on what the Federal Reserve does, but when the Fed is sounding optimistic about the economy, mortgage rates tend to move up.” Mortgage rates have already climbed steadily in the months since the election, because investors believe that President Trump’s policies will boost the economy and that the Fed will raise rates. The average 30-year, fixed-rate mortgage was at 4.3 percent before the most recent rate increase, up from 4.21 percent the week before, and from 3.68 percent a year ago. Those numbers will keep rising after the Fed’s vote of confidence in the economy. Home equity lines of credit, like credit cards, are tied to the prime rate, which in turn is linked to the federal funds rate. So expect borrowing from your house to get pricier as well.
“At some point, the Federal Reserve’s rate increases will trickle down to savers, who have been getting next to nothing on their deposits for years,” said Christina Rexrode in The Wall Street Journal. Just don’t hold your breath. The last two rate increases had very little impact on deposit rates for checking and savings accounts. That’s because deposit rates mostly reflect what banks are “willing to pay.” Deposits at U.S. banks totaled $12.9 trillion in the fourth quarter of 2016, up 65 percent from a decade ago. As most banks don’t need more deposits, “they don’t feel compelled to rush to pay more for them.” It’s a pretty grim picture for savers, said Ben Popken in NBCNews.com. If the national average savings interest rate increased from 0.11 percent to 0.15 percent, a person “with $1,000 in the bank would earn 40 cents more in compound interest over the year.” But hey, at least it’s something. “The third of people in a recent survey who reported having $0 in savings will of course see no benefit.”