How Will Today’s Interest Rate Hike Impact Your Finances?

Better Investing

What's Hot


The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

How a Mexican Tariff Will Boost the Cost of 6 Common PurchasesFamily

This Free Software Brings Old Laptops Back to LifeMore

How to Protect Yourself From the ‘Can You Hear Me?’ Phone ScamFamily

Report: Walmart to Begin Selling CarsCars

Where to Sell Your Stuff for Top DollarAround The House

Is Your TV Tracking You? Here’s How to Tell — and Prevent ItAround The House

11 Staging Tips to Help You Get Top Dollar When Selling Your HomeAround The House

21 Restaurants Offering Free Food Right NowSaving Money

20 Simple Hacks to Make Your Stuff Last LongerAround The House

4 Car Insurers That Might Raise Rates Even When the Accident Wasn’t Your FaultCars

How to Invest If Trump Kills the ‘Fiduciary Rule’Grow

12 Surprising Ways to Wreck Your Credit ScoreBorrow

9 Secret Ways to Use Toothpaste That Will Make You SmileAround The House

The 2 Types of Music That Most Improve Dog BehaviorFamily

The Federal Reserve finally has increased interest rates again. Find out what the move means for your wallet.

The Federal Reserve System changed its benchmark interest rate today, upping it to a range between 0.5 and 0.75 percent.

This marks the first change in the federal funds rate this year, and only the second change in eight years. The hike means most Americans can expect their finances to be impacted in the new year. Whether the impact is positive or negative for you depends on what types of debts, savings and investments you have.

The Federal Reserve System, commonly known as “the Fed,” is responsible for setting monetary policy for the country.

From December 2008 until December 2015, the Fed kept its target interest rate at its lowest-ever level, within a range between 0 and 0.25 percent. One year ago, it was increased a bit, to a range between 0.25 to 0.5 percent.

Now that it has been increased again, here’s what you should expect:

Mortgages

A rise in the Fed’s benchmark interest rate affects certain types of real-world interest rates more than others.

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. But things might be different if you are shopping for an adjustable-rate mortgage — or if you already have one.

Greg McBride, chief financial analyst at Bankrate, tells CNBC that homeowners with an adjustable-rate mortgage “are a sitting duck for a big increase.” He goes on to explain that they might want to consider refinancing their mortgages:

“There is no sense in bearing the risk of an adjustable rate when you can lock in a fixed-rate and essentially the same level. The average 30-year fixed rate mortgage is about 4.15 percent — not all that far off from the record low of 3.5 percent.”

Credit cards and HELOCs

Expect borrowing costs on credit cards and home equity lines of credit, or HELOCs, to rise. Most credit cards come with a variable rate, and that rate adjusts over time.

As MarketWatch reports:

Credit card interest rates are … tied to the prime rate, an index a few percentage points above the federal funds rate. It is a benchmark that banks use to set home equity lines of credit and credit card rates; as federal funds rates rise, the prime rate does, too.

Interest-bearing savings accounts and CDs

Rising interest rates benefit money held in interest-bearing bank accounts, money-market accounts and certificates of deposit.

Because the Fed is expected to continue to gradually increase its rate over time, however, you should not necessarily anticipate a quick upward rebound in the interest rates you are paid on such accounts.

Have you made any changes to your finances or budget in anticipation of a Fed rate hike? Let us know below or on Facebook.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!

💰🗣📰

Read Next: 30 Awesome Things to Do in Retirement

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,781 more deals!