After raising interest rates 10 times in the past 15 months, the Federal Reserve is expected to pause on Wednesday and keep rates unchanged. But the cumulative impact of past rate hikes will continue to weigh on indebted American households, while benefiting those with money to save.
The US Federal Reserve (Fed) has already raised its benchmark federal funds rate to a range of 5% to 5.25% in an effort to curb inflation, which is showing signs of slowing down. But prices remain high and the Fed may decide to raise interest rates as soon as next month.
This means credit card and mortgage costs may continue to rise, not only for those who want to pay off their debts, but also for those who want to take out a new loan to renovate their kitchen or buy a new car. It means that it can be difficult.
Re-Envision Wealth president Anna Enzi Conte said: “We have been very spoiled by low interest rates for some time, but what is the real cost of debt because of it? I was misled by a false sense of security,” he said. Asset management company.
Here’s how the Fed’s decision will affect various interest rates, and what’s happening now.
credit card
Credit card interest rates are closely related to Fed policy. In other words, consumers with revolving debt have seen credit card rates rise rapidly over the past year (with increases typically occurring within one or two billing cycles).
The average credit card rate was 20.44% as of June 3, according to Bankrate.com, up from about 16% last March when the Fed began a series of rate hikes.
Those with credit card debt should focus on paying it off, assuming interest rates will continue to rise.Zero percent balance transfer offers can be helpful if used judiciously (still Existence “It’s for people with good credit, but there’s a fee,” said Matt Schultz, chief credit analyst at LendingTree.his research I have found that such tactics often work.
car loan
Rising interest rates on loans have dampened car sales, especially in the used-car market, experts say. This is because loans are more expensive and prices remain high. Auto loan approvals are also harder than they were a year ago.
“There is an affordability challenge in the car market,” said Jonathan Smoke, chief economist at market research firm Cox Automotive.
According to Edmunds.com, the average interest rate for new car loans in May was 7.1%, higher than before. 5.1 Last year it was a percent. Used car interest rates were even higher, with the average loan interest rate in May at 11%, up from 8.2% in the same period last year.
Auto loans tend to follow 5-year Treasury bills, which are subject to the Fed’s key interest rates, but they aren’t the only factor in determining how much you pay. The borrower’s credit history, vehicle type, loan term and down payment are all factored into the interest rate calculation.
Housing loan
The 30-year fixed-rate mortgage rate does not track the Fed’s benchmark rate and generally tracks the 10-year Treasury yield. This yield is affected by a number of factors, including the Fed’s inflation expectations and inflation expectations. behavior and how investors react to it all.
Mortgage interest rates are highly volatile. Mortgage rates rose above 7% in late October for the first time since 2002 before dropping to nearly 6% in February before rising again to 6.71% today. June 8, according to Freddie Mac. The average interest rate for the same loan for the same week in 2022 was 5.23%.
Other mortgages are more closely tied to the Fed’s move. Home equity lines of credit and variable rate mortgages (each with floating rates) typically rise within two billing cycles after the Fed rate change. The average interest rate on home equity loans was 8.48% as of June 7, up from 4.45% a year ago, according to Bankrate.com.
student loan
Borrowers who already have federal student loans will not be affected by the Fed’s action because their loans are risky. fixed rate set by the government. (Most of these loans have been suspended for the past three years as part of pandemic relief and are expected to resume by the end of the summer.)
However, new prices for federal student loans are determined each July based on the 10-year Treasury bond auction in May.Them loan interest rate rose: Borrowers on federal undergraduate loans originated after July 1 (and before July 1, 2024) will pay 5.5%, up from 4.99% for loans originated in the same period last year. Just three years ago, interest rates were below 3%.
Graduate students who take federal loans will also pay about 0.5 percentage points more, an average of about 7.05%, and parents will pay an average of 8.05% more.
Private student loan borrowers have already seen interest rates rise thanks to previous hikes. Both fixed and variable rate loans are linked to benchmarks that track the Federal Funds Rate.
savings vehicle
Savers looking for better returns on their money live easier lives. Interest rates on his online savings account and his one-year certificate of deposit are at their highest levels in over a decade. However, the pace of that increase is slowing.
“Consumers now have several options to earn more than 5% yield on cash,” said Ken Tumin, founder of DepositAccounts.com, part of LendingTree.
The Fed’s key interest rate hikes often mean banks will pay more on deposits, but that may not be the case anytime soon. They tend to raise their rates if they want to bring in more money.
The average yield on online savings accounts was 3.98% as of June 1, up from 0.73% a year ago, according to DepositAccounts.com. But money market fund yields offered by brokerage firms are even more attractive because they track the federal funds rate more closely. The Crane 100 Money Fund Index, which tracks money market funds, recently yielded 4.91%.
Interest rates on certificates of deposit, which tend to be tied to similarly dated Treasury bills, have also increased.average 1 year According to DepositAccounts.com, the CD rate for online banks was 4.86% as of June 1, up from 1.49% in the same period last year.
