long last, the Federal Reserve has raised its benchmark
interest rate. But the impact on savings accounts and
loans wonít be big, at least for now.
the December hike, the federal funds rate ó which has
hovered near zero for the past six years ó increased
by just a quarter of a percentage point.
talking about a baby step," said Greg McBride,
chief financial analyst at Bankrate.com, which tracks
changes could come in 2016, though, if the Fed continues
to raise rates, as many expect. With that in mind, here
is what young savers and borrowers should know and do
deposits: Most savings accounts pay a fraction of a
percent in interest, and thatís unlikely to change
soon, McBride said. "Banks donít need to attract
more deposits," he said. And after years of earning
low returns on loans, "banks are more likely to
raise rates on loans first, not on deposits," he
get a fatter savings yield, consider online banks,
credit unions and community banks, many of which offer
high-yield savings accounts that pay about 1 percent
institutions, McBride said, "are paying the best
returns now and will likely continue to pay the best
returns as rates rise."
cards: Credit card rates tend to follow Fed moves almost
immediately, As such, expect to see a higher rate on
your card within one to two billing cycles, said Jill
Gonzalez, an analyst at WalletHub.com, an online
personal finance resource.
suggested that consumers start to tackle card balances
now, especially before any further rate hikes.
help, look for cards with zero percent balance-transfer
offers. Today, such offers are normally good for as long
as 18 months. But as rates rise, that period is likely
to shrink to about 12 months, Gonzalez said.
loans: If you have a federal student loan, breathe easy.
Your interest rate is fixed and will not change.
private student loans, your rate will go up within the
next billing cycle or so if you have a variable-rate
loan (about half of all borrowers do), said Mark
Kantrowitz, a student loan expert.
good news is that the increase to your monthly payment
will be minimal. A borrower with a $10,000 loan and a 5
percent interest rate today will pay about $1.25 more
per month after the Fedís quarter-point hike. And
variable rate private student loans are still about
three to four percentage points cheaper than their
fixed-rate equivalents, Kantrowitz said.
you intend to pay off the loan in the next few years,
youíre probably better off with a variable rate,"
next year, new borrowers applying for student loans,
whether federal or private, should expect higher costs.
rates on federal student loans, for example, reset every
July 1, and additional Fed rate hikes could help nudge
the cost of these loans higher next summer, Kantrowitz
loans: As with student loans, if you have a fixed-rate
mortgage you donít have to worry about higher monthly
borrower with an adjustable rate mortgage will see
payments increase almost immediately if he is out of the
temporary fixed-rate period (usually the first five or
seven years of the loan).
you plan to stay in your house for several more years,
now may be the time to refinance into a fixed-rate loan.
If not, do the math to see if it makes sense to hold on
to your ARM.
average rate on a 5/1 ARM (meaning a variable rate loan
with a five-year fixed-rate period) is 3.19 percent
today, according to HSH.com, which tracks mortgage
trends. A 30-year fixed-rate loan charges 4.02 percent.
might do better with an ARM whose fixed-rate period
matches your timeframe," said Keith Gumbinger, vice
president at HSH.