Personal Finance

How exactly will a Fed rate hike impact your wallet?

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The U.S. Federal Reserve is widely expected to raise its target fed funds rate this year. Whether that will be as early as this month or later is still unclear. But one thing that's certain is that the second increase in a decade will impact the cost of consumer credit.

"One single-quarter point move isn't something you're necessarily going to notice," according to Chief Financial Analyst Greg McBride. Still, "it's a great time to dial in on where your interest rates are and shop around to get better deals."

Here's a breakdown of what to do if you're concerned about what this means for your bank account, adjustable-rate mortgage loan or credit card, and how to turn a rate hike into an opportunity to save.


The economy, the Fed and inflation all have some influence over long-term fixed mortgage rates, which are pegged to yields on U.S. Treasury notes, so there's likely to be some creep from current levels even before the Fed officially makes a move.

With interest rates rising, adjustable rate mortgages could be heading higher too so don't be surprised to see some payment increases down the road.

"Be mindful of when your loan adjusts so you can budget accordingly," McBride advised, or, consider refinancing.

"There is no sense in bearing the risk of an adjustable rate when you can lock in a fixed rate at essentially the same level," he said.

Currently, mortgage rates are near the lowest levels ever with the average 30-year fixed rate near 3.6 percent — only about an eighth of a percentage point above the record low.

Auto loans

For those planning on purchasing a new car in the next few months, one interest rate increase will not have any material effect on borrowing costs. A quarter percentage point difference on a $25,000 loan is $3 a month, according to Bankrate's McBride.

"Nobody is going to have to downsize from the SUV to the compact because of rates going up," he said.

What will affect what kind of car you can afford is shopping around to secure the best rate on your financing, checking that your credit is in good shape and negotiating the price of your vehicle, he added.

Credit cards

Most credit cards on the market these days have a variable rate, which means there's a direct connection to the benchmark rate. "A quarter percentage point rate hike means your credit card rate will go up by a quarter of a percentage point within a few billing cycles," according to McBride.

"That's a little more of a headwind toward your debt repayment," he said. But "there's still amply time to make aggressive steps toward paying down your high-interest debt."

And, "consider those zero balance transfer offers," McBride said. "They won't be around forever, particularly if the Fed continues to raise interest rates, so lock those in while you still can."

Student loans

Federal student loan rates are fixed, so most borrowers won't be impacted immediately by a rate hike. But if you have a private loan, those loans may have a variable rate tied to the Libor, prime or T-bill rates — which means that if the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

"If you have a loan with a variable rate, and there is a rate hike, the interest rate will go up accordingly," according to Max Spiegel, chief operating officer Student Loan Hero, a student-loan management site. "That being said, it will be a very gradual, steady increase and that will allow people time to refinance into a fixed rate if they are uncomfortable in the long term," he said.

"There is no need to panic," Spiegel said. "It's going to be so small and so gradual it's not going to affect you that much initially."


Stashing some cash in a savings account has yielded nearly nothing, aside from peace of mind, and that's not likely to change much.

The average interest rate on a savings account is less than 0.08 percent right now, according to Bankrate, and even with a Fed rate hike, banks may not pass on any of that increase to their customers, which means interest on deposits will remain near rock bottom.

Banks' terms allow them to be slower to raise rates on savings products than they are on loans and credit cards, according to Nick Clements, co-founder of

Rather, "check online savings accounts, often you can pick up an additional full percentage point that way," McBride advised.