What the Fed rate hike means for your finances

On Wednesday, Federal Reserve Chair Janet Yellen announced that the fed is raising the federal funds rate by a quarter of a percentage point to a range of 0.5 percent to 0.75 percent. The move could end up helping savers and hurting borrowers with credit card debt and adjustable mortgages. However, most Americans likely won’t feel very large impact unless the Fed rate hike is followed by several more.

5 ways the Fed rate hike will impact your personal finances

1. Credit card rate will rise with the Fed rate hike

The vast majority of credit cards are variable interest rate card that are tied directly to the prime rate. The prime rate is about 3 percentage points above the federal funds rate. So when the federal funds rate changes, the prime rate follows – meaning credit card rates are moving too.

So the Federal Reserve increasing interest rates will make it a bit more expensive for you to borrow money with a credit card.

2. Savings rates will go up a bit

 

CD and savings rates generally follow the short-term interest rates that track the Federal funds rate. However, it’s not an exact correlation –  Treasury yields and other economic factors also influence rates on long-term CDs.

3. Auto loans are going to be a little more expensive

As mentioned above, the federal funds rate largely influences short-term interest rates, however it does have an impact on medium-term loans like auto loans.

And lenders will price auto loans relative to the prime rate, which tends to move with the federal funds rate.

4. Mortgage rates likely won’t be influenced much by Fed rate hike

While the Federal Reserve has an indirect influence on mortgages, mortgage rates are dictated the bond market – mostly the 10 year Treasury.

Sometimes mortgage rates go up when the Fed increases short-term rates. This time mortgage rates increased in anticipation of a Fed rate hike.

However jut because the Fed rate hike won’t won’t be pushing up mortgage rates, doesn’t mean mortgage rates won’t go up. Most housing experts including Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors expect mortgage rates to rise in 2017.

5. Home equity lines of credit interest rates will go up with Fed rate hike

The home equity line of credit, or HELOC, is linked to the prime rate, so when the Fed raises its target rate, HELOC rates go up too. So if you are looking to tap equity from your home, you will want to carefully compare the cost of a HELOC versus a traditional cashout refinance. Because if the Fed continues to increase interest rates then the cost of your HELOC will also continue to rise.