The Federal Reserve used its most potent weapon on Wednesday: a rate hike of three-quarters of a percentage point, the biggest increase since 2008. It’s part of an aggressive battle to douse white-hot inflation. What it means for you will depend on your situation and how you use money.
Consumer debt:
Whenever the Fed raises its target federal funds rate, it impacts the rates lenders and creditors charge on your loans. This includes mortgages and credit cards. The lower the interest rate, the less you pay per month.
Auto loans and other long-term loans:
These are generally not impacted as much by the Fed’s interest rate decisions, because they tend to fluctuate in tandem with the yield on US 10-year Treasury bonds. That said, if the Fed raises its rates, you’ll probably pay more per month on any loan that requires an annual percentage rate (APY) to be paid in full each year.
Savings:
While higher interest rates aren’t good for borrowers, they’re extremely good for savers. After all, the more your savings earn, the more they can grow. And that, in turn, can help you reach your financial goals faster.