What the Fed’s latest rate hike means for credit card rates and other loans

The Federal Reserve’s latest interest rate hike could mean higher borrowing costs for some consumers, especially those with a lot of credit card debt.

The Fed on Wednesday raised its benchmark rate by a quarter of a percentage point, to a range of 4.75 percent to 5 percent, its highest level in 16 years and above almost zero a year ago.

Although it is a smaller increase than other recent increases aimed at fighting inflation, the measure will further increase borrowing costs for families and companies.

According to a study of WalletHub.

That’s on top of the $30.4 billion more in credit card interest charges the study attributes to earlier Fed rate hikes since last March, when the central bank’s policy rate was close to zero.

The Federal Reserve’s latest interest rate hike could mean higher borrowing costs for some consumers, especially those with large credit card debt.

The Fed has continued with its rate hikes to fight still-high inflation.  By increasing the cost of borrowing, the central bank hopes to curb spending and control prices.

The Fed has continued with its rate hikes to fight still-high inflation. By increasing the cost of borrowing, the central bank hopes to curb spending and control prices.

HOW MUCH HIGHER DO CREDIT CARD BILLS GO?

The average interest rate on credit cards, or annual percentage rate, has already reached its highest level since bankrate.com began its following began in the mid-1980s and is likely to grow further.

According to Bankrate, the current three-month trend is for an average APR of 20.05 percent, up from 16.3 percent a year ago.

Those interest rates will only affect people who carry balances on their credit cards, but the number of Americans with credit card debt is rising, and so are their outstanding balances.

According to WalletHub, the average American household had $9,990 in credit card debt at the end of 2022, up 8.9 percent from a year ago.

Bankrate says 46 percent of people are in debt from month to month, up from 39 percent a year ago.

The data also shows that more people are falling behind on payments, Bankrate analyst Greg McBride told the Associated Press.

McBride sees this as evidence of the so-called “K-shaped recovery” from the pandemic, in which the gap between the haves and the have-nots is widening.

“More than half of those who pay in full each month are clearly doing much better than almost half of those who don’t,” McBride said.

‘Those who tend to carry balances tend to be younger people, people with lower incomes, and those with lower credit scores. Another factor contributing to rising debt is inflation, which means the cost of daily living is outpacing paychecks.”

The average interest rate on credit cards, or annual percentage rate, has already reached the highest level since at least the mid-1980s.

The average interest rate on credit cards, or annual percentage rate, has already reached the highest level since at least the mid-1980s.

The amount of consumer loans, including credit cards and other revolving plans with commercial banks, shot up to $965.6 billion on March 8, up from $830 billion a year ago.

The amount of consumer loans, including credit cards and other revolving plans with commercial banks, shot up to $965.6 billion on March 8, up from $830 billion a year ago.

Government data shows the number of consumer loans, including credit cards and other revolving plans with commercial banks, shot up to $965.6 billion on March 8. That’s more than $830 billion in the same period last year.

Most credit cards have a variable rate, which means that interest charges follow rate increases by the Federal Reserve because most issuers calculate them in part based on the bank’s prime rate, or the rate it offers to its largest customers.

The Federal Reserve does not have a direct role in setting the prime rate, but most banks choose to set their prime rates based in part on the federal policy rate target level.

WILL MORTGAGE RATES INCREASE?

Experts don’t expect a big change in mortgage rates after the latest rate hike, mainly because it’s already heavily priced in the mortgage markets.

This is because mortgages have fixed rates that are priced over a much longer time frame than other loan vehicles, and tend to track the yield of the 10-year Treasury rate rather than the policy rate. the Federal Reserve.

“Treasury yields fell last week, driven by uncertainty about the health of the banking sector and concerns about the broader impact on the economy,” said Joel Kan, an economist with the Mortgage Bankers Association.

Mortgage rates fell for the second week in a row, with the 30-year fixed rate falling to 6.48 percent, the lowest level in a month, according to Kan.

Although mortgage rates have fallen in recent weeks, they are still much higher than they were a year ago, before the Fed began its aggressive rate hikes.

Nadia Evangelou, a senior economist at the National Association of Realtors, said mortgage rates may decline further in the coming weeks, depending on financial market reactions to the Fed’s new rate hike.

Although mortgage rates have fallen in recent weeks, they are still much higher than they were a year ago, before the Federal Reserve began its aggressive rate hikes (file photo)

Although mortgage rates have fallen in recent weeks, they are still much higher than they were a year ago, before the Federal Reserve began its aggressive rate hikes (file photo)

Experts don't expect a big change in mortgage rates after the latest rate hike, mainly because it's already heavily priced in the mortgage markets.

Experts don’t expect a big change in mortgage rates after the latest rate hike, mainly because it’s already heavily priced in the mortgage markets.

“At the current rate, many can afford to buy a median-priced home, since they need to spend less than 25 percent of their gross income for their monthly mortgage payment,” he said.

“If rates drop further to 6%, buyers will be able to buy the median-priced home paying 14%, which was the median down payment for buyers in 2022,” he added.

Mortgage rates had soared to more than 7 percent last October when the Fed raised rates at the fastest pace in 40 years to combat inflation.

The interest rate-sensitive housing sector has been hardest hit by the Fed’s actions, although existing home sales rose in February for the first time in about a year.

WILL CAR LOANS INCREASE?

Bankrate says the current average APR on a 48-month new car loan is 6.45 percent, the highest level in at least a decade.

Auto loan rates don’t move at the same pace as the Fed’s policy rate, but experts say the Fed’s latest move could increase the average APR on a 48-month new car loan by about 12 basis points in the coming months.

“The Fed’s rate hike, which stands at 4.75 percent to 5 percent after the March meeting, will indirectly affect its rates,” Bankrate analysts wrote in a note.

“So even as sky-high car prices have fallen 4 percent from their peak last summer, the increase in interest rates will still result in a more expensive experience overall.”

Honda Accord sedans line up on a sales lot at the Canobie Lake Honda car dealership earlier this month in Salem, New Hampshire.

Honda Accord sedans line up on a sales lot at the Canobie Lake Honda car dealership earlier this month in Salem, New Hampshire.

For historical context, the average APR on a 48-month new car loan increased from 4.00 percent in November 2015 to 5.50 percent in February 2019, according to WalletHub.

That was an increase of 150 basis points in a period marked by 225 basis points in rate hikes from the Fed.

WILL SAVINGS ACCOUNTS OFFER HIGHER RETURNS?

Savings and money market accounts do not typically follow the changes of the Fed.

Instead, banks tend to take advantage of a higher rate environment to try to increase their profits. They do this by imposing higher rates on borrowers, without necessarily offering higher rates to savers.

But savings accounts could see a moderate increase in interest payments as the benchmark rate rises.

The national average interest rate for savings accounts is currently 0.23 percent, up from 0.19 percent on December 7, according to the latest Bankrate weekly survey.

Rising returns on high-yield savings accounts and certificates of deposit (CDs) have put them at levels not seen since 2009, meaning households may want to increase savings whenever possible.

According to Bankrate’s most recent national survey of banks and savings banks, the average rate is 1.62 percent for a one-year CD, 1.71 percent for a jumbo one-year CD, 1.24 percent for a five-year CD and 1.30 percent for a five-year CD. Jumbo CD of the Year.

Now you can also earn more on bonds and other fixed income investments.

Although traditional savings accounts don’t typically follow Fed changes, online banks and others that offer high-yield savings accounts may be exceptions.

These institutions typically compete aggressively for depositors. The problem is that sometimes they require significantly high deposits.