Hold on to your wallet.
In a much-anticipated announcement, the Federal Reserve suggested on Dec. 15 that it likely will raise its target federal funds rate three times in 2022, with more hikes in 2023, according to reports.
Raising the federal funds rate so frequently is likely to affect millions of Americans’ finances. Some folks will benefit, while others will feel the pain.
Currently, the federal funds rate sits in a range between 0% and 0.25%, but barring something unforeseen — always a possibility, of course — it appears that will start to change in 2022.
Here are a few ways rate hikes can affect your costs and some suggestions for making the best of your situation ahead of the impending rise in rates.
1. 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 explained at the start of the last round of rate hikes, 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, rates on fixed-rate mortgages are likely to move higher over time as the federal funds rate increases.
The effect of a rising federal funds rate could be more direct if you have an adjustable-rate mortgage, which means your mortgage rate changes periodically. In that case, you can fully expect your monthly mortgage costs to increase steadily as the Fed hikes 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. Go to Money Talks News’ Solutions Center to search for a great rate on a mortgage refinance.
For more advice, check out “How to Refinance Your Home Loan.”
2. Rates on credit cards and HELOCs will head higher
If you have a credit card or home equity line of credit (HELOC), your borrowing costs could rise every 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 pay off any credit card debt. If you need help, stop by the Solutions Center to learn how to find a reputable credit counselor.
To learn about another route out of debt, check out “Here’s How to Stop Paying Credit Card Interest.”
3. You might earn 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 certificates of deposit (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 Money Talks News’ Solutions Center.
Meanwhile, for tips on investing in times like these, check out Money Talks News founder Stacy Johnson’s recent podcast episode “The Best Investments for Rising Interest Rates.”
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.