The Federal Reserve on Wednesday authorized the biggest interest rate hike in 22 years as part of its effort to combat the quickest surge in prices in over 40 years, doubling down on a series of rate increases that’s already making a slew of debt offerings more expensive—including some student loans, credit cards and future mortgages.
“Now is the time to aggressively pay down high-cost credit cards,” Bankrate Chief Financial Analyst Greg McBride said in emailed comments, pointing out nearly all credit cards come with variable interest rates that fluctuate in tandem with the federal funds rate determined by the Fed.A couple of rate hikes alone isn’t likely to have a considerable effect on smaller-ticket items including auto financing, but on Thursday, several major banks—including Bank of America, Wells Fargo and JPMorgan—raised their prime interest rates, which are used to calculate loan costs, to 4%, compared to roughly 3.25% two years prior.
Mortgage rates have jumped 2 full percentage points since the beginning of the year, from nearly 3.8% to 5.3%, McBride points out, saying the increase should temper skyrocketing housing prices “as more would-be homebuyers are priced out.”
Many mortgage lending businesses are already suffering from sinking demand, but McBride says the dearth in available homes for sale (still one-third of normal levels) should help rising rates from weighing on the housing market too much.One bright spot? “The outlook for savers is getting better,” says McBride, pointing out high-yielding savings accounts and certificates of deposit will raise payouts even though most banks “are likely to be stingy about passing along higher rate
“Rising interest rates mean borrowing costs more, and eventually savings will earn more,” says McBride, adding that households should be taking steps to “stabilize their finances,” including paying down costly credit cards and other variable-rate debt, and boosting emergency savings. “Both will enable you to better weather rising interest rates, and whatever might come next economically.”