For the second time in a decade, the Federal Reserve Open Market committee has decided to hike interest rates. The Fed unanimously voted to raise the range of the federal funds rate to 0.50% and 0.75% – it’s a decision that was widely expected and will reverberate through the markets, and make its way to consumers eventually.
In terms of mortgages, which have always been susceptible to rate changes, the hike will affect those with variable rates, especially if more hikes come in the next year. Even a small bump can make a large difference: a 0.75% difference on a $200,000 loan manifests in your mailbox as a $100 bigger monthly bill.
But what about savings accounts, which have been steadily paying just 0.06% on average for years?
Well, they’re not likely to move much any time soon. “The most immediate impacts from the Federal Reserve’s decision to hike rates will be felt more among borrowers than for savers,” Mark Hamrick, a senior economic analyst at Bankrate.com, told Yahoo Finance. “If we see more such moves in 2017, then savers should see better rates of return, generally speaking.”
That question of more hikes is of course, up in the air. “This is one of the reasons why we’re very eager to see what the summary of economic projections tells us about the possible future path of rates over the next several years,” said Hamrick. “Keep in mind, the projection of future rates is just an estimate, and not a promise.”
These hikes trickling down into your accounts will be a slow process, so don’t expect anything soon. The Fed itself studied these “sticky deposit rates” a few years ago in 2013 and found the significant lags cost depositors $100 billion per year when rates rise.
According to Hamrick, that delay is due to the fact that a savings account interest rate is essentially a marketing tool. “Banks adjust the yields based on their need to grow that deposit base. In turn, that money gets turned back into the economy through lending, a function of loan demand.” This means, that at the very least, in the near-term, short-term CDs will see higher yields.
If you’re looking for higher interest rates for your deposit accounts, however, one way to do that besides waiting is to look at online savings accounts. As long as you don’t have to deposit cash very often—there are no local branches—you can take advantage of giant 1% rates on accounts, made possible by the bank’s infrastructure savings. Ally, Barclays, and American Express are popular options, and there are many more out there.
For credit card interest rates, the hike should have a direct and quick effect—as quick as next month, according to Bankrate, mostly because most credit cards have a variable rate. Of course, these changes may feel comparably small since credit card APRs are so high in general. Exactly when rate hikes affect credit card interest rates are listed in the credit card details you get when you sign up, and it’s often in the next billing cycle after a change.
Unlike credit card rates, auto loans likely won’t spike soon. As the Credit Union National Association told Bankrate, car loan rates lag Fed moves—similar to savings accounts. Ditto goes for federal student loans, which are fixed, making them impervious to rate changes. Private loans, on the other hand, may have variable rates that can kick in a similar fashion to credit cards. For future student loan borrowers, however, the rate hike will likely affect the rates they pay on federal loans, though exact rates are decided by Congress.