What Fed policy means for mortgages, credit cards, savings – Orange County Register

Personal Injury Attorney

Policymakers at the Federal Reserve have squeezed the budgets of debt-laden Americans – and rewarded those with money to stash in savings.

The Federal Reserve has raised its benchmark rate, the federal funds rate, to over the past year-and-a-half to rein in inflation, which recently sped up as gas prices rose. Prices remain elevated, leading the Fed to keep rates high for a prolonged period of time.

That means the cost of credit cards and mortgages may remain relatively high, making it more difficult for people who want to pay down debt — as well as those who want to take out new loans to renovate their kitchen or buy a new car.

“We were very spoiled for a while with low rates, and that lulled us into a false sense of security in terms of what the true cost of debt can be,” said Anna N’Jie-Konte, president of Re-Envision Wealth, a wealth management firm.

Here’s how different rates are affected by the Fed’s decisions — and where they stand now.

Credit Cards

Credit card rates are closely linked to the Fed’s actions, which means consumers with revolving debt have seen those rates rise over the past year — and quickly (increases usually occur within one or two billing cycles).

The average credit card rate was 20.44% as of July 19, according to Bankrate.com, up from around 16% in March 2022, when the Fed began its series of rate increases.

People carrying credit card debt should focus on paying it down and assume rates will continue to rise. Zero-percent balance transfer offers can help when used carefully (they still exist for people with good credit, but come with fees), or you might try negotiating a lower rate with your card issuer, said Matt Schulz, chief credit analyst at LendingTree. His research found that such a tactic often works.

Car Loans

Higher loan rates have been dampening auto sales, particularly in the used-car market, because loans are more expensive and prices remain high, experts said. Qualifying for car loans has also become more challenging than it was a year ago.

“The vehicle market has challenges with affordability,” said Jonathan Smoke, chief economist at Cox Automotive, a market research firm.

The average rate on new car loans in August was 7.4%, up slightly from the start of the year, according to Edmunds.com. Used-car rates were even higher: The average loan carried an 11.2% rate in August, down a bit from a recent high of 11.4% in March.

Car loans tend to track the five-year Treasury note, which is influenced by the Fed’s key rate — but that’s not the only factor that determines how much you’ll pay. A borrower’s credit history, the type of vehicle, loan term and down payment are all baked into that rate calculation.


Rates on 30-year fixed-rate mortgages don’t move in tandem with the Fed’s benchmark rate, but instead generally track the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations around inflation, the Fed’s actions and how investors react to all of it.

Mortgage rates recently rose to their highest levels since 2002. The average rate on a 30-year mortgage was 7.18% as of Sept. 14, according to Freddie Mac, compared with 6% for an identical loan the same week in 2022.

Other home loans are more closely tethered to the Fed’s moves. Home-equity lines of credit and adjustable-rate mortgages — which each carry variable interest rates — generally rise within two billing cycles after a change in the Fed’s rates. The average rate on a home-equity loan was 8.61% as of Sept. 13, according to Bankrate.com, up from about 7% a year ago.

Student Loans

Borrowers who already hold federal student loans are not affected by the Fed’s actions because that debt carries a fixed rate set by the government. (Payments on most of these loans have been paused for the past three years as part of a pandemic relief measure, and are set to become due again in October.)

But batches of new federal student loans are priced each July, based on the 10-year Treasury bond auction in May. And those loan rates have climbed: Borrowers with federal undergraduate loans disbursed after July 1 (and before July 1, 2024) will pay 5.5%, up from 4.99% for loans disbursed in the year-earlier period. Just three years ago, rates were lower than 3%.

Graduate students taking out federal loans will also pay about half a point more than the rate a year earlier, or about 7.05% on average, as will parents, at 8.05% on average.

Borrowers of private student loans have already seen those rates climb thanks to the prior increases. Both fixed- and variable-rate loans are linked to benchmarks that track the federal funds rate.


Savers seeking a better return on their money have had an easier time: Rates on online savings accounts, along with one-year certificates of deposit, have reached their highest levels in more than a decade. But the pace of those increases is slowing.

“Consumers now have several options to earn over 5% yield on their cash,” said Ken Tumin, founder of DepositAccounts.com, part of LendingTree.

An increase in the Fed’s key rate often means banks will pay more interest on their deposits, though it does not always happen right away. They tend to raise their rates when they want to bring more money in.

The average yield on an online savings account was 4.39% as of Sept. 1, according to DepositAccounts.com, up from 1.8% a year ago. But yields on money market funds offered by brokerage firms are even more alluring because they have tracked the federal funds rate more closely. The yield on the Crane 100 Money Fund Index, which tracks the largest money market funds, was recently 5.16%.

Rates on certificates of deposit, which tend to track similarly dated Treasury securities, have also been ticking higher. The average one-year CD at online banks was 5.1% as of Sept. 1, up from 2.67% a year earlier, according to DepositAccounts.com.

    • REAL ESTATE NEWSLETTER: Get our free ‘Home Stretch’ by email. SUBSCRIBE HERE!

Top 10 Best Personal Injury Attorneys Riverside CA

Source link

Reach Out

Don’t hesitate to reach out to us to discuss your specific needs. Our team is ready and eager to provide you with tailored solutions that align with your firm’s goals and enhance your digital marketing efforts. We look forward to helping you grow your law practice online.

Our Services:
Blog Post Writing
We do well-researched, timely, and engaging blog posts that resonate with your clientele, positioning you as a thought leader in your domain.

Content Writing
Beyond articles and content for blogs, we delve into comprehensive content pieces like eBooks, and case studies, tailored to showcase your expertise.
Website Content Writing: First impressions matter. Our content ensures your website reflects the professionalism, dedication, and expertise you bring to the table.

Social Media Management
In today’s interconnected world, your online presence extends to social platforms. We help you navigate this terrain, ensuring your voice is consistently represented and heard.

WordPress Website Maintenance
Your digital office should be as polished and functional as your physical one. We ensure your WordPress site remains updated, secure, and user-friendly.
For more information, ad placements in our attorney blog network, article requests, social media management, or listings on our top 10 attorney sites, reach out to us at seoattorneyservices@gmail.com.

Warm regards,

The Lawyer Group Team

Leave a Reply

Home Privacy Policy Terms Of Use Contact Us Affiliate Disclosure DMCA Earnings Disclaimer