How Rising Interest Rates Will Affect Your Finances Through the End of the Year
Continuing efforts to fight inflation , the Federal Reserve announced in early February that it was raising interest rates by 0.25% to a target range of 4.5% to 4.75%. This is the eighth meeting in a row that resulted in a rate hike, and the Fed says it expects the rise to continue.
When the Fed raises interest rates, they raise the so-called federal funds rate. Although this is not the rate that consumers pay, the federal funds rate still affects us ordinary consumers in our daily lives. Here’s what you need to know about raising interest rates and what you can do as a borrower and saver.
How the new interest rate will affect your life
The federal funds rate is meant to establish what banks charge each other, but it extends to everything from mortgages to student loans. If you’re planning on applying for a credit card, home, or car loan anytime soon, here’s how the latest interest rate hike will affect your life.
Credit card rates
While many of us aren’t vigilant about our credit card interest rates, these numbers have reached a ten-year high and will continue to rise. Most credit cards have a variable rate and follow the direction of the federal funds rate directly.
When your credit card interest rate goes up, make sure you have a plan to pay off any credit card debt . And perhaps the easiest way to lower your credit card interest rate? Just ask .
Mortgage rates
The higher the mortgage rate, the lower your purchasing power as a home buyer, which affects how much housing you can afford and how high your monthly payments will be.
Here we explain what a high mortgage rate means for your monthly payment . To find out more, you can find out how much the current rate will affect your monthly payments with the online mortgage calculator .
Most types of loans
Auto, student and many private loans are often fixed. Unfortunately, they are not immune to the Fed’s latest test. Rising interest rates continue to result in a higher average interest rate and even higher payments in the future.
If you’re planning to buy a car or take out a student loan soon, it’s best to use a high credit score to access a lower rate. Check out our guides to improving your low credit score and staying high .
bottom line
While inflation appears to be declining from its peak last summer, it has certainly remained stable over the past couple of years. While the Fed has raised interest rates in an attempt to bring down inflation, it’s important to be a good borrower and saver. This may mean temporarily holding out on credit for major purchases, as well as boosting your strength as a borrower with a high credit score .