The Federal Reserve is expected to raise the target federal funds rate up to three times this year. Here's how you can prepare for those increases.
The Federal Reserve is expected to raise its target federal funds rate up to three times this year. In some cases, that can hit you right where it hurts most — in the wallet. But you can also benefit from a rate hike.
Currently, the rate sits in a range between 0.5 and 0.75 percent, after the Fed’s most recent hike on Dec. 14. The notion of three follow-up rate hikes in 2017 is simply a projection that could change at any time.
However, it’s clear that higher rates are coming, either sooner or later. Here are three ways a rate hike can affect your costs — and some suggestions for making the best of your situation.
Your mortgage costs might increase
If you are looking for a mortgage — or even if you already have one — your monthly expenses might be higher if the Federal Reserve hikes rates.
As we’ve explained before, mortgage rates do not move in lockstep with the federal funds rate:
If you are shopping for a fixed-rate mortgage, don’t expect drastic changes. Fixed-rate mortgages are not directly tied to the federal funds rate.
However, although there is no direct relationship, fixed-rate mortgages are likely to move higher over time as the federal funds rate increases.
If you already have an adjustable-rate mortgage that adjusts periodically, expect your monthly mortgage obligation to increase if the Fed continues to hike rates.
The bottom line: Mortgage rates remain near historic lows, and probably have nowhere to go but higher over the long term. So, the time to lock in to a good rate is likely right now.
You can search for the best mortgage rate in our Solutions Center.
For more advice, check out “9 Tips to Save Tens of Thousands on Your Mortgage.”
Rates on credit cards and HELOCs will adjust higher
If you have a credit card or home equity line of credit, your borrowing costs could rise each time the Federal Reserve hikes the federal funds rate.
That’s because the rates tied to these borrowing tools are variable and go up and down along with interest rate trends as a whole.
In recent years, you’ve probably gotten used to borrowing very inexpensively. But it appears those days are coming to an end.
The bottom line: Now is a great time to search for a better credit card rate. You can use our Solutions Center to find the perfect plastic.
If you’re already in credit card debt — and looking for a way to get out — we can point you toward a professional who will help you restore your credit. You can also look for an expert who will get collectors off your back.
And to steer clear of trouble in the future, check out “How to Avoid 5 Sneaky Credit Card Company Tricks.”
You might make more money on savings
So far, we’ve looked at the negative effects of an interest rate hike. But it’s not all gloom and doom. When the Fed hikes rates, the rates on savings accounts and CDs are likely to move higher as well. That means you’ll make more money on your savings.
The bottom line: It’s worth comparing rates on savings accounts and CDs in the weeks and months after a Federal Reserve rate hike. You can search for a better-paying option in our Solutions Center.
For more tips on growing your savings, check out:
- “7 Ways to Make Your Savings Grow Faster Automatically“
- “Resolutions 2017: Save More Money Using 5 Simple Tricks“
How are you preparing for potential hikes in the federal funds rate? Sound off below or on Facebook.