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Here’s what the Fed’s half-point rate hike means for your money


The Federal Reserve raised its target federal funds rate by a half point at the end of its two-day meeting Wednesday, notching the largest increase in the benchmark in more than 20 years.

“The Federal Reserve is behind the curve,” said Greg McBride, chief financial analyst at Bankrate.com. “They have to raise interest rates a lot — and in a hurry.”

What the federal funds rate means to you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate that consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.

“Rising interest rates mean borrowing costs more, and eventually saving will earn more,” McBride said.

“This hints at the steps households should be taking to stabilize their finances — pay down debt, especially costly credit card and other variable rate debt, and boost emergency savings,” he added. “Both will enable you to better weather rising interest rates, and whatever might come next economically.”

Credit-card borrowers, homebuyers could see hikes

Short-term borrowing rates, particularly on credit cards, are set to jump higher.

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark, so expect your annual percentage rate to rise within a billing cycle or two.

“When it comes to raising credit card APRs, banks don’t waste time,” said Matt Schulz, chief credit analyst for LendingTree.

Credit card rates are currently just over 16%, significantly higher than nearly every other consumer loan and may go as high as 18.5% by the end of the year — which would be an all-time record, according to Ted Rossman, a senior industry analyst at CreditCards.com.

If the APR on your credit card rises to 18.5% in 2022, it will cost you another $885 in interest charges over the lifetime of the loan, assuming you made minimum payments on the average $5,525 balance, Rossman calculated.

If you’re carrying a balance, try calling your card issuer to ask for a lower rate, consolidate and pay off high-interest credit cards with a lower interest home equity loan or personal loan or switch to an interest-free balance transfer credit card.

“Now is the time for those with credit card debt to focus on knocking it down,” Schulz said. “That debt is only going to get more expensive.”

Adjustable-rate mortgages and home equity lines of credit are also pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. 

But, because longer-term 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the broader economy, most homeowners won’t be impacted immediately by a rate hike.

This rate hike is already baked into mortgage rates, according to Jacob Channel, senior economic analyst at LendingTree.

The average interest rate for a 30-year fixed-rate mortgage hit 5.55% this week, the highest since 2009, and up more than two full percentage points from…



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