Offbeat Fed rate hike: Are you a winner or a loser?

03:25  14 june  2018
03:25  14 june  2018 Source:   bankrate.com

Why your budget will feel the Fed's next rate hike

  Why your budget will feel the Fed's next rate hike That increase is likely coming this week, and it means a slew of borrowing costs will become more expensiveThe Fed's monetary policymakers are likely to add another quarter-point to the central bank's key interest rate, putting it at 1.75 percent to 2 percent, the highest since 2008, economists said. This would be the second of as many as four interest rate hikes this year. The Fed last raised its benchmark rate a quarter-point in March, moving it into the range of 1.5 percent to 1.75 percent.

Losers : Rates on home equity lines of credit, or HELOCs, will rise a quarter of a percentage point. Expect it to hit your wallet within 30 days, or by the second billing statement after the Fed ’s hike .

I had never before looked in detail at the consequences of a short-term interest rate hike . Basically, if you have a fixed rate on your house or car loan, you are a winner ( or at least not a loser ) but if you are looking to buy a house or car, then you are a loser .

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The Federal Reserve, for the second time since Jerome Powell took the helm, hiked short-term interest rates, and may do so two more times this year.

This is the latest move in the campaign the Fed began in December 2015, when it raised rates for the first time in a decade as the economy began to pick up steam. Since then, the U.S. unemployment rate has continued to fall while the stock market is flirting with all-time highs. Inflation and wage growth remain less than stellar but are starting to inch higher.

Fed rate hike will add $2.2 billion in credit card interest charges

  Fed rate hike will add $2.2 billion in credit card interest charges The U.S. central bank is expected to hike its key interest rate another quarter of a percentage point Wednesday. And that means higher interest rates on credit cards.That also means cardholders soon will be forking over even more money in interest payments annually, an estimated $2.2 billion alone for what’s expected to be the Federal Reserve’s second rate hike of the year, according to the June Credit Card Debt Report from CompareCards. And if the Fed raises rates two more times this year, it will boost interest paid on credit cards to roughly $10 billion in 2019, the report said.

Fed rate hike : Are you a winner or a loser ? See if the latest interest rate hike hurts or helps your finances. Fed raises rates again, sets tone for months ahead. The Fed has raised rates for the sixth time since December 2015, and more rate hikes are coming.

Past performance does not guarantee future results. The post 2015 Fed rate hike : Winners and losers appeared first on Smarter InvestingCovestor Ltd. is a registered investment advisor.

A world of higher interest rates means different things to different people, depending on whether you're a borrower or lender. Homebuyers, homeowners with equity, credit card holders, vehicle owners making car payments and savers will all react somewhat differently to this news.

Here's what you need to know.

Mortgages

Mortgage rates depend largely on the 10-year Treasury yield rather than the federal funds rate. But investor demand for government debt and the rationale behind the Fed's decisions often dovetail.

Animal spirits have perked up a bit over the last few months. Corporate earnings remain strong, the economy continues to convalesce and market participants believe that the GOP tax plan will lead to more economic growth. That has put a limit on bond prices as folks switch over to stocks (remember, bond prices and yields are inversely related.)

After 9 years of economic recovery, Fed's anxieties finally fade

  After 9 years of economic recovery, Fed's anxieties finally fade The Federal Reserve is guiding a U.S. economy that is as close to ideal as it could have dreamed a decade ago, when the darkest days of the recession forced it to take big risks to protect workers, banks and economies around the world from further devastation. After nine years of steady if uneven recovery, the United States is now growing at a pace topping 4 percent, unemployment is as low as it's been this century, and inflation has safely edged up toward an official target.While a few items remain on the U.S.

The U.S.’s military action against ISIS, falling commodity prices caused by weak demand and excess supply, continuing conflict in Ukraine, coupled with the concerns about a possible move by Fed to increase the interest rates as early as the first quarter of 2015, spooked the markets.

MORE: Winners and losers of the Federal Reserve rate hike . Kulik understands what the Fed rate hike means for retirees across the country, who would benefit from higher interest rates on their savings and CD accounts.

The Fed agrees, believing that the economy can withstand higher borrowing costs. Rates for a 30-year fixed mortgage have moved up over the past six months to around 4.7 percent.

Winners:

Homeowners who locked in fixed-rate mortgages this time last year are winners because mortgage rates have continued to tick up.

If the economy continues to hum along, and investors buy into an American growth narrative, mortgage rates should continue to rise. Nevertheless, rates almost certainly will remain low by historical standards, so people who shop successfully for a mortgage this year can count themselves as winners. Remember, the 30-year fixed averaged 6.74 percent six months before the Great Recession began.

Losers:

Homeowners with adjustable-rate mortgages (ARMs) might end up with bigger payments when the next rate adjustment rolls around. ARMs are tied to indexes that are sensitive to Fed rate moves.

Here's what the Fed rate hike actually means for you

  Here's what the Fed rate hike actually means for you If you're concerned about what an additional increase in the Fed's benchmark rate will mean for your mortgage or credit card, as well as student debt, home equity loan and car payment, here's a breakdown of what's in store — and what you should do about it. Credit cardsFor starters, credit card rates are already at a record high of 17 percent on average, according to Bankrate.Most credit cards have a variable rate, which means there's a direct connection to the Fed's benchmark rate, and as interest rates rise, card holders will continue to get squeezed.

Generally, the prime rate is about 3 percent higher than the federal funds rate . That means that when the Fed raises interest rates , the prime rate also goes up. Fed rate hike : Are you a winner or a loser ?

Fed rate hike : Are you a winner or a loser ? | Bankrate. 3 days ago A world of higher interest rates means different things for different people, depending largely on whether you 're a borrower or lender.

Home equity

Using your home as a credit card? Get ready for your seventh rate increase since December 2015 and the second of three likely hikes in 2018. (There could be four.) Comparison-shop home equity lines so you can get cash to pay for home renovations or other financial needs.

Losers:

Rates on home equity lines of credit, or HELOCs, will rise a quarter of a percentage point. Expect it to hit your wallet within 30 days, or by the second billing statement after the Fed’s hike. Virtually all HELOCs are linked to the prime rate. The Fed’s action immediately raises the prime rate by one-quarter of a percentage point, to 4.75 percent.

Winners:

Many HELOCs have a feature that lets you set aside a portion of the amount you borrow, take a fixed rate on that and then pay it down. Those fixed rates won’t change. Alternatively, if you have a fixed-rate home equity loan, your interest rate won’t change.

Credit cards

Many variable-rate credit cards are tied to movement in the prime rate, which is tied to the federal funds rate. When that goes up, your credit card’s annual percentage rate is likely to rise as well.

Powell Solves Some Fed Policy Mysteries, Plot Thickens on Others

  Powell Solves Some Fed Policy Mysteries, Plot Thickens on Others Jerome Powell gave Federal Reserve-watchers some meaningful answers on Wednesday. He also left them scratching their heads over ever-bigger questions. The Federal Open Market Committee closed out its June meeting by raising interest rates and suggesting it’ll hike twice more this year, and the Fed chairman announced that he’ll soon start giving press conferences every -- rather than every other -- policy meeting.Powell Lauds Economy as Fed Nudges Up Interest-Rate Hike PathYet if one theme ruled the day, it was an optimistic uncertainty.

The central bank last lifted rates in June 2006, the final hike in a two-year series of increases. The Fed holds a policy meeting Tuesday. Here's a breakdown of potential winners and losers

“The biggest ‘supposed-to- be winners ’ will end up losers if they live in a state where Medicaid hasn’t been expanded,” says Jost, of Washington and Lee University. Fed rate hike : Are you a winner or a loser ?

Winners:

“Only if you carry a balance is this really going to be an issue,” says Eric Lindeen, vice president of marketing at ID Analytics, a risk management firm.

The added revenue from credit card interest could ultimately allow financial institutions to reintroduce more competitive deposit products. In other words, “the biggest winners are going to be those that are saving rather than borrowing,” Lindeen says.

If you need to carry balances month-to-month, find a low-rate credit card today.

Losers:

If you’re carrying a balance on a variable-rate card, “it’s time to hustle up and get (debts) paid down,” says Greg McBride, CFA, Bankrate chief financial analyst.

Shop now for the best balance transfer cards before credit cards with 0 percent interest rate offers become scarcer.

CDs and money market accounts

Savers might wonder when savings rates will finally return to something resembling normal. The most likely answer: not soon.

Winners:

In addition to this quarter-point hike, savers can look forward to at least one more increase in 2018, if all goes to plan. That would make it more attractive to shop for high-yield certificates of deposit.

But this takes time. "Fed rate hikes typically mean some increase in interest rates on savings accounts and CDs," says Don Kohn, a former Fed vice chairman and now a senior fellow at the Brookings Institution.

Why Fed rate hike can drive you to pay down credit cards

  Why Fed rate hike can drive you to pay down credit cards The average credit card debt for those younger than 35 was $5,808, according to a study. Average goes up to $8,235 for those age 35 to 44."They haven't really had to think too much about interest rates because they didn't change that much," said Robert A. Dye, chief economist at Comerica Bank.

WSJ rounds up who stands to benefit and lose the most after the Federal Reserve raises interest rates . Tablet Edition. Podcasts. RSS Feeds . WSJ on Twitter.

Here is the quick snapshot of the winners and losers if today the Fed tightens (in the process crushing another battalion of FF/Eurodollar traders who still see the probability of a tightening cycle starting today at under one-third).

“At least some of it will get passed through in deposit rates, with a lag,” Kohn says.

Online savings products tend to offer better yields more quickly.

Losers:

Your cash still isn't doing much for you, and the Fed will be deliberate as it raises rates to pre-recession levels.

If you bit the bullet and opened a multi-year CD recently and it wasn’t a rising-rate CD, you’re going to have to grit your teeth and accept a lower rate until it matures, or risk paying a potentially hefty early withdrawal penalty.

Auto loans

The Fed’s action will tap the accelerator on auto loan interest rates, though they’re not likely to rise too much.

Losers:

Auto loan rates don’t move in lockstep with interest rates set by the Fed, but they do follow the trend set by the central bank -- and rates have moved up since last summer.

Interest rate rises will be gradual but unstoppable, so the sooner you get an auto loan, the better.

Winners:

Shopping around for car loans and improving your credit rating can win a great rate, no matter what the Fed does.

“A couple of quarter-point rate moves by the Fed are small potatoes by comparison,” says Bankrate's McBride. “A rate hike has virtually zero impact on auto loan affordability, with a quarter-point hike meaning a difference of $3 in monthly payment. Nobody will have to downsize from the SUV to the compact based on rising interest rates.”

Let this move be a reminder to not buy more car than you can afford.

Fed hikes push saving account rates to 5-year highs .
Finally, some noticeable rise is filtering into the wallets of consumers, and the best rates are at internet banksThis isn't good news for everyone, especially borrowers, who will have to contend with rising rates on everything from credit cards to auto loans. But it bodes very well for savers.

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