Interest Rates Expected To Rise Again: How To Prepare
The Federal Reserve began a two-day meeting on Jan. 31, one which is anticipated to result in another interest rate increase. The increase is expected to be 0.25%, or 25 basis points, per Reuters — which is smaller than the hikes consumers experienced in 2022. However, an increase of any size can impact household budgets. Here are a few ways the announcement might impact saving and borrowing.
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Savings accounts
One of the few positive outcomes of increased interest rates is that high-yield savings accounts have started to increase their rates as well. It probably won’t offset the impacts of inflation, stagnant wages, and interest rate hikes, but it does provide some additional earnings. Therefor, it may be wise to prepare for another rate hike by planning to deposit extra cash into a high-yield savings account once rates tick upward.
Credit cards
Credit cards usually have variable annual percentage rates (APR), which means that there is a range of possible rates. Because of that, interest rates for credit cards will likely increase as a result of the announcement from the Federal Reserve. Consumers won’t see the impact immediately, as it usually takes one or two billing cycles for rates to change. Given that another interest rate hike is in the cards, any outstanding credit card debt should be resolved as quickly as possible. This is generally solid advice no matter the economic climate, as credit cards tend to have some of the highest interest rates of all loan types.
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Auto loans
Auto loans usually have fixed interest rates. This means that a rate hike won’t impact current auto loans, but it could impact the interest rates for future loans. But because auto loans are primarily based on an individual’s credit history and score, consumers might still be able to land a better rate by focusing on those factors instead. It would be prudent to lock in a necessary auto loan before any additional rate hikes take effect — there is a second 25 basis point hike anticipated when the Fed meets again in March.
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This article originally appeared on GOBankingRates.com: Interest Rates Expected To Rise Again: How To Prepare
