The Fed Raised Interest Rates--What Does This Mean for You?

On Wednesday, December 13th, the Fed increased its federal funds rate — which is what banks charge each other for overnight loans — by a quarter percentage point to a range of 1.25% to 1.5%.  Ok, so what does that mean?

Well, if you have a revolving loan with a variable interest rate such as monthly payments on credit cards or an adjustable-rate mortgage, you most likely saw an immediate increase in your monthly payments.

Fixed rate mortgages because of the long-term length have not seen much change.  Auto loans may have gone up just a hair, but there is so much competition some interest rates may not have changed at all.  As a plus, your interest rate at your local bank could go up a little on customer deposits.  Just don't expect a fast or an equivalent rise in your savings accounts or CD rates, many of which pay interest of 1% or less. Those rates have barely budged the past year despite the Fed’s hike.

So if you have an adjustable rate mortgage (ARM), now would be the time to refinance! As for credit cards, consider a zero-interest balance transfer offer and make aggressive steps toward paying down your high interest debt.  If you are just starting to shop for a mortgage loan or car loan, don't be too concerned.  Interest rates for these two groups are still low.