The Fed raised interest rates by an additional 75 basis points on July 27. The news, while unsurprisingly, comes after Treasury Secretary Janet Yellen told Meet the Press that inflation is too high, but assured Americans that “this is not an economy in recession”.
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So what does the increase mean for your personal profit?
As interest rates rise, the cost of borrowing money — everything from mortgages to credit cards — will rise.
How does the sting affect your household finances?
It will hit a number of areas, some harder than others, but it may not be instantaneous. Now is a good time to re-evaluate your household budget and look for areas where you might be able to save so that you can try to pay off your credit card debt or reduce your reliance on credit cards if you’ve been using them to make ends meet. meet.
Here are a few areas where some, but not all, Americans may feel the bottleneck.
Mortgage loans and refis
Unless you have a variable rate mortgage or plan to buy a home soon, the rate hike should not affect your current fixed rate mortgage. Ultimately, mortgage rates for new mortgages and ARMs will rise. If you’re planning to refinance, now might be a good time while interest rates are still low and home prices high.
If you’re planning to buy a home, the news isn’t as bleak as it seems. If interest rates rise, house prices may begin to fall. So your monthly mortgage payment for a particular home you buy may be the same, but your interest payment will matter more.
There is more good news. Keith Gumbinger, vice president at HSH.com, told The New York Times:[R]Rates could rise significantly from current levels and still be considered low by historical standards.”
Credit card companies must give consumers 45 days notice before raising rates or raising rates, giving you time to prepare for higher monthly payments. During that time, consider shopping around for a balance transfer card with a 0% intro APR to put a dent in that revolving debt.
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Experts say higher interest rates usually take “one or two statement cycles” to be reflected in bills, according to The New York Times.
Federal student loans have a fixed interest rate, so current borrowers don’t have to worry about a rate hike. According to the New York Times, new borrowers could pay 1.5% to 1.9% more in the future to borrow money for college.
As with fixed-rate mortgages and student loans, you don’t have to worry about your monthly payments increasing if you pay off a current car loan. However, if you buy a new or used car and apply for a loan, you can expect to pay more to borrow money.
When you couple higher auto loan interest rates with rising prices at the pump and the higher cost of buying a new or used car and driving it, it becomes an expensive affair.
Yields on savings accounts, certificates of deposit and money market funds are all expected to rise in the coming months, but the increases could be small. The national average for savings accounts in June 2022 is just 0.07%, according to GOBankingRates.com.
Money market account returns can grow faster, according to The New York Times, but they rarely provide the best return on your investment.
Stocks and bonds
With Wall Street already in a bear market, the effect of the rate hike on stocks could be small. The New York Times noted that any market reaction this week to the FOMC’s decision to hike rates has been a “short-lived blip.”
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Bonds can also fall when interest rates rise. But if you own bonds as part of mutual fund investments, the funds will reinvest the money to rebalance your portfolio, ultimately resulting in higher returns.
“You have to absorb those price losses in the short term, but in the long run you could get higher returns,” Andrew Patterson, senior international economist at Vanguard, told The New York Times.
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This article originally appeared on GOBankingRates.com: Everything you need to know about the Fed’s influence on your personal finances