What the Fed’s rate hikes mean for mortgages, credit cards, and more

As the Federal Reserve has raised its key interest rate, Americans have seen the effects on both sides of the family ledger: savers benefit from higher returns, but borrowers pay more.

Is that how it works:

Credit card rates are closely tied to actions by the Federal Reserve, so consumers with revolving debt can expect those rates to rise, usually within a billing cycle or two. The average credit card rate was recently 17.25 percent, according to Bankrate.com, up from 16.34 percent in March, when the Federal Reserve began its series of rate hikes.

“With the frequency of the Fed’s rate hikes this year, there will be a round of higher rates for cardholders every two statement cycles,” said Greg McBride, chief financial analyst at Bankrate.com.

Auto loans are also expected to rise, but those increases continue to be dwarfed by the rising cost of buying a vehicle and the price you pay to fill it up with gas. Auto loans tend to follow the five-year Treasury note, which is influenced by the Federal Reserve’s key rate, but that’s not the only factor that determines how much you’ll pay.

A borrower’s credit history, vehicle type, loan term and down payment are included in the rate calculation.

The average interest rate on new car loans was 5 percent in the second quarter, according to Edmunds, down from 4.4 percent in the same period last year. Last month, the proportion of new-car buyers paying $1,000 or more per month on their loans hit a record high of nearly 13 percent, Edmunds said.

Whether the rate increase affects your student loan payments depends on the type of loan you have.

Current borrowers of federal student loans, whose payments are on hold until August, are not affected because those loans have a fixed rate set by the government.

But new batches of federal loans are priced in each July, according to the 10-year Treasury bond auction in May. Rates on those loans have already increased: Borrowers with federal college loans disbursed after July 1 (and before July 1, 2023) will pay 4.99 percent, versus 3.73 percent for loans disbursed the previous year.

Private student loan borrowers should also expect to pay more: Both fixed-rate and variable-rate loans are tied to benchmarks that track the fed funds rate. Those increases usually show up within a month.

30-year fixed mortgage rates do not move in tandem with the Fed’s benchmark rate, but rather follow the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations about the inflation, the actions of the Fed and how investors react to it all.

Mortgage rates have risen more than two percentage points since early 2022, though they are off their highs, as recession fears have prompted traders to temper expectations of future Fed rate hikes. despite stubbornly high inflation, pushing bond yields lower in recent weeks.

Rates on 30-year fixed-rate mortgages averaged 5.54 percent as of July 21, according to the main Freddie Mac mortgage survey, down from 5.81 percent a month ago but considerably higher than 2.78 percent from a year ago.

Other home loans are more tied to the Fed move. Home equity lines of credit and adjustable-rate mortgages, each of which have variable interest rates, typically increase within two billing cycles after a change. in Federal Reserve rates.

Savers looking for a better return on their money will have an easier time: Yields have been rising, though they’re still pretty meager.

A hike in the key Fed rate often means banks will pay more interest on their deposits, though it doesn’t always happen right away. They tend to raise their rates when they want to attract more money; many banks already had a lot of deposits, but that may be changing at some institutions.

Rates on certificates of deposit, which tend to track Treasury securities with similar dates, have been rising. The average one-year CD at online banks was 1.9 percent in June, down from 1.5 percent the previous month, according to DepositAccounts.com.

The five-year average CD was 2.9 percent in June, down from 2.5 percent in May.

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