What the Federal Reserve’s latest interest rate hike means for you

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Credit card interest rate
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For the fourth time this year, the Federal Reserve announced a widely expected interest rate hike on Thursday.

But what does this bump in short-term interest rates mean for you as a consumer?

RELATED: The biggest money mistakes to avoid in 2019

Which interest rates that you pay will be affected?

The Federal Reserve just announced a rate hike of 25 basis points, which brings the benchmark federal-funds rate to a range between 2.25% and 2.5%.

The stock market immediately reacted negatively. But how does this impact you?

The upshot of the interest rate hike is that a couple of interest rates you might be paying will positively go up overnight, while a few others may be affected based on general economic conditions.

Here’s what you need to know…

Variable interest rates on credit cards will go up immediately

Most credit card interest rates are based on the U.S. prime rate, a derivative of the federal funds rate that was 5.25% before the latest hike. Now, after the hike, that rate is set at 5.50%.

Put another way, the latest rate hike of 25 basis points will show up point-for-point in the credit card interest rate you pay.

If, for example, your floating APR on a credit card was 17% before the hike, it will now be 17.25%.

The interest rate on your adjustable rate HELOC is going up immediately

Many HELOCs are “prime plus 1%.” So before the rate hike, you may have been paying 6.25% (5.25% + 1%).

Now, after the 25-basis-points rate hike, you’ll be paying 6.50%.

These interest rates are less likely to be directly affected

These kinds of consumer interest rates below are not directly tied to the Fed’s interest rate policy, so they’re not expected to jump immediately.

However, they will all follow the general trend line of interest rates over time.

Mortgage interest rates

A lot of interest rates are based on the 10-year Treasury yield. Such is the case with mortgage interest rates.

Don’t panic if you’re in the market for a mortgage right now or are in an adjustable rate mortgage; the rate you’re shopping or paying won’t go up overnight because of the Fed hike.

Auto loan interest rates

Auto loan interest rates are another area where there’s not a direct correlation between what the Fed is doing and what you’re paying to finance your wheels.

Rather, auto loan interest rates are another case where they generally follow the trend line of where other interest rates are going — whether that’s up or down.

Savings account interest rates

The nation’s Big 4 banks — Bank of America, Chase, Citi and Wells Fargo — aren’t likely to bump their interest rates for savers just because the Fed bumped its benchmark federal-funds rate.

In fact, the Federal Deposit Insurance Corp. says the national average savings account interest rate is 0.09% right now. That’s so small you practically need a microscope to see it!

But fear not, savers. We’ve got a list of a variety of online banks that will pay you 2% APY or higher on your money. That’s just one more reason to fire the traditional banks and take your money to their online competition!

Final thought

Anytime there’s an interest rate hike from the Federal Reserve, it sets you further back when you borrow money on credit and have debt in your life.

You can’t control the larger economic cycles of our nation; all you can do is get your own financial house in order.

Why not make 2019 the year you finally kiss debt goodbye and start building some savings — so you don’t have to borrow again in the future when a rainy day comes?

We’ve got plenty of ways to show you how — from the CLARK Method of creating a monthly budget and the traditional envelope budgeting method to our New Year’s savings challenges and simple ways to make extra money in 2019!

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