What a Federal Reserve rate hike means for you

“Auto loan rates will go up as the Fed raises interest rates, but that won’t be a problem for car buyers because it has such a limited impact on monthly payments,” McBride said, adding that a quarter percentage point difference on a $25,000 loan is $3 a month. “No one will need to switch from SUV to compact due to rising tariffs,” he said.

Many people have been hiding extra money in their bank accounts over the past couple of years, but whether rate increases translate to a more attractive return depends on the type of account you have and the institution with which you do business.

A rise in the Fed’s benchmark often means banks will pay more interest on deposits, but not necessarily right away. Banks tend to raise their rates when they want to bring in more money, but the bigger banks already have plenty of deposits. This gives them little incentive to pay depositors more.

Small banks and online banks tend to pay better rates faster than larger institutions, according to Ken Tumin, founder of DepositAccounts.com, part of LendingTree. And some of them, especially the savings arms of credit card banks, including Capital One and American Express, have already started raising their rates a bit, he added.

But overall, rates remain quite low. The average online savings account paid just 0.49% in March, according to DepositAccounts.com; the average was 0.48 a year ago. In physical banks, the average savings account returned 0.12% in March, down slightly from 0.15 the previous year.

Certificates of deposit, which tend to track same-date Treasury securities, have already started to rise a bit, especially among online banks: the average one-year CD in online banks is 0.67 % in March, compared to 0.51% in January, while the five-year average CD is 1.08%, compared to 0.86% in January.

Most money market mutual funds, which tend to hold lower-risk investments like short-term government securities, are also expected to rise, albeit from a floor. Most money market fund returns are below 0.02%. “They usually react pretty quickly to changes in the fed funds rate,” Tumin said.

Comments are closed.