Fed Raises Interest Rates — Here's How the Move Could Hit Your Credit Cards, Mortgage and Auto Loan

The Federal Reserve’s interest-rate hike could raise borrowing costs for consumers while potentially improving returns for savers. The central bank raised th...

Tanya Rawat · Currently, by AT&T

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The Federal Reserve's interest-rate hike could raise borrowing costs for consumers while potentially improving returns for savers. The central bank raised the federal funds rate by 25 basis points on Wednesday to a target range of 3.75% to 4%, marking its first increase since July 2023.

The move affects borrowing and savings rates, with credit cards, home loans, auto loans and deposits among the areas that could see changes, CNBC reported on Wednesday.

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Credit Cards

Most credit cards carry variable rates linked to the prime rate, meaning rates can rise after a Fed increase. LendingTree chief consumer finance analyst Matt Schulz said cardholders should expect their annual percentage rates to rise by a quarter point over the next couple of months, the report added.

A WalletHub analysis estimated the hike could cost credit card users about $2 billion in interest over the next 12 months.

Home Loans

Fixed 15-year and 30-year mortgage rates do not directly track the federal funds rate. They tend to follow the 10-year Treasury yield and broader bond-market conditions. Mortgage rates could remain elevated, according to the report.

Higher Treasury yields can also put upward pressure on mortgage, auto, and other borrowing costs.

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Auto Loans And Savings

The Fed's move could raise rates on new auto loans, while existing loans are locked once issued. A quarter-point increase could add a few dollars a month to a typical $40,000 auto loan, Joseph Yoon, an Edmunds consumer insights analyst, told CNBC.

Federal student loan rates are fixed, while private student loans can have variable rates tied to benchmarks such as prime or Treasury bills.

Savings rates may also rise. The Fed does not set savings or deposit rates for commercial banks, but these usually track movements in the federal funds rate.

LendingTree's Schulz said higher rates can improve returns on high-yield savings accounts, certificates of deposit, and money-market accounts, according to the report.

Image via Shutterstock

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