Happy rate-a-versary: What Fed interest-rate hikes have done to your wallet over the past two years
As if grocery-store sticker shock wasn’t bad enough.
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Inflation isn’t the only thing that has driven up costs for consumers in the last couple of years. Since the Federal Reserve began raising interest rates, borrowing money has also gotten more expensive.
Whether you’re applying for a mortgage or swiping your credit card, you could be paying hundreds or even thousands of dollars more in interest annually now than you would have a couple of years ago.
It’s been two years since those costs started going up. In March 2022, the Fed, the country’s central bank, started raising rates to slow the flow of money through the economy, in an attempt to rein in the price increases that took hold earlier that year.
The Fed decided Wednesday to keep interest rates where they are for the time being, though officials forecast several cuts for later this year.
The central bank influences the cost of borrowing by raising or lowering a key short-term interest rate known as the federal-funds rate. That in turn affects interest rates throughout the economy — for credit cards, mortgages, car loans, business loans and so forth. It also means that consumers may earn more interest on money deposited in savings accounts or certificates of deposit.
On the two-year anniversary of the start of this latest round of rate hikes, MarketWatch looked at how those higher rates may have affected your wallet, and where you may have felt the impact most.
Your mortgage payment
The Fed’s interest-rate hikes pushed mortgage rates up significantly, making homeownership much more expensive for most people — and unaffordable for some.
“While it seems to be stating the obvious now at the two-year anniversary of the Fed starting to raise interest rates, rates matter,” Mark Fleming, chief economist of First American, told MarketWatch.
Comparing February 2024 and February 2022, housing affordability fell by 44%, Fleming said, and is now at the same level as in June 2006 — the peak of the real-estate boom.
Every increase in mortgage rates can have a big impact on borrowers’ monthly payments. The average interest rate on a 30-year mortgage was 3.85% on March 10, 2022, according to Freddie Mac data. That month, a median-priced home cost $375,300, according to the National Association of Realtors.
If you had bought a median-priced home at the average interest rate then, your monthly payment would be about $1,408, according to MarketWatch’s mortgage calculator. (The monthly principal and interest payment excludes property taxes, home insurance and homeowners association fees.)
If you bought a house for the same price in 2024, with the 30-year rate averaging 6.74% as of March 14, your monthly payment would be $1,945 — $537 more per month.
High mortgage rates have not only dampened affordability over the last two years, they’ve also spurred the so-called lock-in effect, where homeowners who have a rock-bottom mortgage rate are not selling their homes, because they don’t want to buy a new one at current rates of around 7%.
So “not only do rates make purchasing less affordable, but [they] also restrict the incentive to sell, only exacerbating affordability [challenges] as house prices are pushed higher,” Fleming added.
Home prices continue to climb amid the low supply of listings, making the current housing market a very challenging one for buyers.
But there is a silver lining, Fleming said: “All expectations are that the peak in mortgage rates is over and rate reductions are in the near future.”
That could gradually ease the lock-in effect and make mortgages more affordable again.
Your car payment
Higher interest rates have also made buying a car a lot more expensive. In March 2022, the average price of a new vehicle was $45,128, with the amount financed averaging $39,582, according to data from the car-buying and review site Edmunds.
The average interest rate on a new car two years ago was 4.5%, making the monthly payment on a typical 72-month loan $628 — a total of $45,243 in payments over the life of the loan.
Fast forward two years, and the average interest rate on a new-car loan was 7.1% as of February 2024, according to the most recent data available from Edmunds.
If you bought a car today and financed $39,582 at the current interest rate, you’d pay $677 monthly, an additional $49 in interest per month over what you would have paid in 2022.
That adds up to $48,720 over 72 months — a difference in total cost of $3,477. If you’re curious, you can do your own comparison using this car payment calculator.
And because car prices are 4.3% higher now than they were two years ago, the average payment is now $747. The increased sticker prices are the result of a number of factors that aren’t directly related to interest rates, including supply-chain issues.
But higher prices and interest rates aren’t the only things adding to the cost of owning a car. The cost of insurance is also climbing: It has increased by 43% since January 2022, also for reasons that aren’t directly related to inflation or interest rates.
As a prepandemic reference, in March 2019, the average interest rate on a car loan was 6.4% and the monthly payment on a $39,582 loan would have been $663. (Cars cost less at the time: The average amount financed then was $31,962, and the average payment on a new car was $553.)
Joseph Yoon, Edmunds’ consumer-insights analyst, said that while the rate hikes alone add up to thousands of dollars in additional interest over the life of a car loan, they “aren’t terribly impactful to consumers.” But because vehicle prices along with everything else, down to weekly grocery runs, now carry a higher price tag, “elevated car prices compounded by high interest rates add further strain to buyers’ budgets.”
Your credit-card bill
Some of the biggest interest-rate hikes have been those on credit-card bills, where the average annual percentage rate is now above 20%.
If you’re carrying a balance, that could be costing you hundreds of dollars more in interest each year. According to credit-reporting firm TransUnion TRU, the average amount of credit-card debt per borrower was $5,010 at the beginning of 2022.
Around that time, the average annual percentage rate for credit-card holders was about 14.6%, according to data collected by the Fed. If you carried that average balance over from one month to the next, you’d accrue about $60.62 in monthly interest charges.
Fast-forward to 2024. The average credit-card APR is now about 21.5%, Fed data show. If you carried over that same $5,010 balance, you’d now owe about $89.86 in interest charges.
If you add that increased charge up over the course of the year, the difference totals nearly $347.
And many Americans are carrying larger balances these days than they were a couple of years ago. Total credit-card debt topped $1 trillion last year and has continued to reach record highs as inflation raises prices and consumers keep spending.
The average credit-card balance is now at an all-time high of $6,360, TransUnion’s latest data show. At the average current APR, according to the Fed, that amounts to about $114 in monthly interest charges.
Credit-card interest rates “are the highest they’ve been in the 40 years we’ve been tracking this,” said Ted Rossman, a senior industry analyst at Bankrate.
Those rates can be especially crippling for cardholders who carry a balance from one month to the next. For a borrower with the current average balance of just over $6,000, making minimum payments at the average interest rate would keep them in debt for more than 18 years, Rossman noted.
“It becomes a more expensive debt cycle,” Rossman said.
Your savings account
But higher interest rates bring at least one silver lining for consumers. After years of super-low interest rates, rate increases finally rewarded savers and cash investors.
After rates increased, high-yield savings accounts and bank certificates of deposit began attracting savers’ attention — and more deposits.
People have poured more than $1 trillion into CDs since the start of 2022, Federal Deposit Insurance Corp. numbers show. Domestic bank deposits had $2.87 trillion in CDs through the end of last year, up from $1.24 trillion in the first quarter of 2022.
The past two years have been good for savers, said Tim Quinlan, a senior economist at Wells Fargo.
“Those people are now saying, ‘Wow, what a life. I have a savings account, a money-market account or CDs that are finally paying some real interest,’” he said.
Say you had $8,000 in a savings account in early 2022, when the national deposit-interest rate hovered at about 0.06%, according to the FDIC. At that rate, with monthly compounding, you were looking at about $8,004.80 at the end of 12 months.
Fast-forward to now. With that same $8,000 earning the current national deposit average of 0.47%, you’d have $8,037.68 after 12 months.
And those yields are still speeding past 2022 returns — especially for people looking beyond brick-and-mortar banks.
Consumers who have opted for high-yield savings accounts, such as those offered by some online banks, have seen even bigger gains. In 2022, those online accounts had an average APY of 0.491%, according to DepositAccounts.com, which means your $8,000 would have grown to $8,039.37 after compounding monthly for a year. At current rates of about 4.441%, your balance would grow to $8,362.60 over 12 months.
