With the Federal Reserve raising its key interest rate, Americans have seen the effects on both sides of the household ledger: Depositors reap higher yields, but borrowers pay more.
Credit card rates are closely tied to the Fed’s actions, so consumers with revolving debt can expect these rates to rise, usually within one or two billing cycles. The average credit card interest rate was recently 17.25 percent, according to Bankrate.com, up from 16.34 percent in March, as the Fed began its series of rate hikes.
“With the frequency of rate hikes by the Federal Reserve this year, every few cycles it will be a boom of higher rates for cardholders,” said Greg McBride, chief financial analyst at Bankrate.com.
Car loans are also expected to rise, but those increases are still overshadowed by the rising cost of buying a vehicle and the price you pay to fill it up. Car loans usually follow the five-year Treasury bond, which is affected by the Fed’s policy rate, but that’s not the only factor that determines how much you pay.
A borrower’s credit history, vehicle type, loan term, and deposit are all baked into that rate calculation.
According to Edmunds, the average interest rate on new car loans in the second quarter was 5 percent, compared to 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 nearly 13 percent, Edmunds said.
Whether the rate increase has consequences for your student debt depends on the type of loan you have.
Current federal student loan borrowers — whose payments are suspended through August — are unaffected because those loans have a fixed rate set by the government.
But every July, new batches of federal loans are priced, based on the 10-year Treasury bond auction in May. Rates on those loans have already risen: Borrowers with federal undergraduate loans disbursed after July 1 (and before July 1, 2023) pay 4.99 percent, up 3.73 percent for loans paid a year earlier. paid.
Private student loan borrowers should also pay more: Both fixed and floating rate loans are tied to benchmarks that track federal fund rates. Those increases usually appear within a month.
The rate on 30-year fixed mortgages doesn’t move with the Fed’s benchmark rate, but instead tracks 10-year Treasury yields, which are affected by a variety of factors, including inflation expectations, the Fed’s actions and how investors react to everything.
Mortgage rates have risen more than two percentage points since the start of 2022, although they have fallen from their peak as recession fears have prompted traders to temper their expectations of future Fed rate hikes despite persistently high inflation. causing bond yields to fall in recent weeks.
The rate on 30-year fixed-rate mortgages averaged 5.54 percent on July 21, according to Freddie Mac’s primary mortgage survey, down from 5.81 percent a month ago, but sharply higher than 2.78 percent a year ago.
Other home loans are more closely tied to the Fed’s decision. Home equity lines of credit and adjustable-rate mortgages — each of which have variable interest rates — generally rise within two billing cycles after a change in Fed rates.
Savers looking for a better return on their money will find it easier – yields have increased, although they are still quite meager.
An increase in the Fed’s policy rate often means banks will pay more interest on their deposits, although this doesn’t always happen right away. They tend to raise their rates if they want to bring in more money – many banks already had sufficient deposits, but that may change at some institutions.
Rates on certificates of deposit, which tend to follow similar-dated Treasuries, are ticking higher. According to DepositAccounts.com, the average one-year CD at online banks was 1.9 percent in June, compared to 1.5 percent the previous month.
The average five-year CD was 2.9 percent in June, up from 2.5 percent in May.