If you missed the news last month, the Federal Reserve (aka The Fed) raised the benchmark federal funds rate by a quarter percent, the first increase in seven years. Back in 2008, during the depths of the Great Recession, they dropped interest rates to zero to help stimulate the economy and housing market. Now that the economy is slowly, but steadily, improving, interest rates will rise as well. If you’re wondering what the increase means to your financial outlook, take a look at some of things the federal interest rate hike can affect:
Credit Cards — That rate hike could cause credit card interest rates to inch up over time. To avoid paying more in interest, start paying off more of your balances each month. It’s also important to make sure you’re making payments on time, as many credit card companies will spike your interest rate with as little as one late payment. If your credit card debt has become unmanageable, free Credit Counseling can help.
Home Mortgages — Again, you’re not going to see any dramatic increases, but rates will begin to slowly rise. If you have a Home Equity Line of Credit (HELOC), chances are you noticed a small increase in your monthly payment. Want to buy a home but not sure you’re ready? Our online homebuyer education course can help you find out.
Vehicle Loans — Many auto dealers continue to offer zero percent interest to customers who with fantastic credit. For everyone else, auto loan interest rates will also be on the rise.
Savings Accounts & Certificates of Deposit — Here’s where the interest rate hike actually works in your favor. If you have a savings account or certificate of deposit that hasn’t been yielding much in the way of return, that should slowly change. It’s not going to be an instantaneous windfall, but within a few years you should be seeing at least an average rate of return.
While the ultimate long-term effects of the rate hike remain to be seen, the regular rules still apply. Don’t borrow more than you can afford, pay every bill on time, and work on accumulating both short- and long-term savings.