Everything you need to know about how the Fed rate affects your personal finances

The Fed recently raised rates more than it has in 28 years, with the benchmark rate jumping 0.75% at the June 15 Federal Open Market Committee meeting. It’s the third of several interest rate increases designed to quell inflation, which has hit double digits. in 2022.

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With inflation waning, in theory, expense management could become easier for consumers. But it is not without its tradeoffs. As interest rates rise, so will the cost of borrowing money – everything from home loans to credit cards.

How will the sting affect your family’s finances?

It will touch a number of areas, some more difficult than others, but it may not be immediate. Now is the time to start reassessing your household budget and looking for areas where you might be able to spend less so you can try to pay off credit card debt or reduce your reliance on credit cards if you’re using them to make ends meet. Meets.

Here are some areas where some, but not all, Americans may feel upset.

Mortgage loans and reinsurance

Unless you have an adjustable mortgage or plan to buy a home soon, the interest rate hike should not affect your existing fixed rate mortgage. However, eventually mortgage interest rates for new mortgages and ARM’s will rise. If you’re planning to refinance, now might be a good time while interest rates are still low and house prices are high.

If you are planning to buy a home, the news is not as bleak as it might seem. As interest rates rise, home prices may start to fall. Therefore, the monthly mortgage payments for any home you choose to buy can be the same, but the interest payments will make up more for it.

There is more good news, too. Keith Jumpinger, vice president of HSH.com, told The New York Times:[R]It could rise significantly from current levels and still be considered low by historical standards.”

credit cards

Credit card companies must give consumers 45 days’ notice before raising rates or increasing fees, so they have time to prepare for higher monthly payments. At that time, consider shopping for a balance transfer card with 0% APR offered to start swaying that revolving debt.

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Experts say higher interest rates tend to take a “statement cycle or two” to reflect on bills, according to the New York Times.

student loans

Federal student loans have a fixed interest rate, so existing borrowers don’t have to worry about an interest rate hike. In the future, according to the New York Times, new borrowers could pay 1.5% to 1.9% more to borrow money for the university.

car loans

As with fixed rate mortgages and student loans, if you’re paying off an existing car loan, you don’t have to worry about increasing your monthly payments. If you are buying a new or used car and applying for a loan, you can expect to pay more to borrow money.

The combination of higher car loan interest rates with higher prices at the pump and increased costs of buying a new or used car and driving becomes an expensive proposition.

savings accounts

Returns on money market savings accounts, certificates of deposits and mutual funds are expected to rise in the coming months, but the increases may be slight. The national average interest rates on savings accounts in June 2022, according to GOBankingRates.com, is just 0.07%.

Money market account returns may go up faster, according to the New York Times, but they rarely yield the best return on your investment.

stocks and bonds

With Wall Street already in a bear market, the effect of raising interest rates on stocks may be minimal. The New York Times noted that any market reaction this week to the FOMC’s decision to raise interest rates is a “short-term signal”.

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Bonds may also fall as interest rates rise. But if you hold bonds as part of mutual fund investments, the funds will reinvest the money to rebalance your portfolio, ultimately leading to higher returns.

“You have to absorb these price losses in the near term, but in the long term you could end up with higher returns,” Andrew Patterson, Vanguard’s chief international economist, told the New York Times.

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This article originally appeared on GOBankingRates.com: Everything you need to know about how the Fed rate affects your personal finances