Update on Thursday, September 17: The Federal Reserve is keeping interest rates at historic lows for at least another month.
The Federal Reserve is expected to raise interest rates soon and there are a few ways it could impact millions of American consumers.
When it does happen, it will be the U.S. central bank’s first rate hike in nearly a decade. The Fed dropped interest rates down to zero back in 2008 in an effort to stimulate the economy and the housing market in the midst of the Great Recession.
But while experts say it’s coming, you shouldn’t panic, because they also say it won’t create drastic changes overnight. The first rate increase will just pave the way for more increases over the next few years — and that’s when people will start to see a bigger impact when it comes to things like credit card and savings accounts, and buying a home or car.
‘The precise starting date [of rate hikes] is much less important than the path of rate increases that follows,’ Robert Denk, senior economist at the National Association of Home Builders, told CNN Money.
How a Fed hike would impact you
A Fed hike would involve several aspects of the U.S. economy. And although experts say we won’t feel the impact immediately, there are a few ways your wallet could potentially be affected.
1. Buying a home
Don’t worry, if you’re considering buying a home in the near future, you don’t have to go out and do it tomorrow. According to experts, the first rate hike is expected to be small — about 25 basis points, or an increase to 0.25%, from 0%. And the ripple effect will be small.
The average interest rate on a typical 30-year fixed rate mortgage right now is 3.9% — which is low in the grand scheme of things. Ten years ago that rate was at about 6%, and experts say they don’t expect mortgage rates to skyrocket any time soon.
2. Savings accounts
If you’ve watched the money in your savings accounts just sit there over the past few years — making zero interest — you may see that change in the near future.
Experts say it won’t happen yet, but the first rate hike would be a signal that more are coming, which would mean higher yields on savings accounts in the next few years.
3. Credit card debt
Credit card rates are already high — nearly 15%, according to CreditCards.com. So an increase probably won’t make much of a difference. The real impact is on consumers who are carrying a lot of credit card debt.
“Most credit cards have a variable interest rate and if the [fed funds rate] moves up, then you’ll start seeing that reflected on your credit card debt right away,” Nick Clements, a former banking executive and founder of personal finance education site MagnifyMoney, told Yahoo.
Your goal with credit cards is to never carry a balance. Only spend what you can pay off by the end of the month. For more advice, check out Clark’s guide to paying off credit card debt.
4. Buying a car
If you’re thinking about buying a car in the near future, don’t worry. Experts say a Fed hike would likely have very little, if any, impact on car buyers. According to Bankrate, ‘any impact on auto loan rates will be negligible if the Fed raises rates.’
“For somebody looking at a $25,000 car loan, even a quarter-point rate hike is only a difference of around $3 a month.’ The average rate on a 60-month auto loan today is 4.28%.