Another interest rate hike is coming from the Federal Reserve: Here's how it could affect you

Abstract

"We remain far from that destination." More from Personal Finance:5 ways to save amid record food price inflationMore Americans are tapping buy now, pay later servicesThese steps can help you tackle stressful credit card debt The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. "Anytime consumers borrow, they are dependent on interest rates," said Tomas Philipson, a professor of public policy studies at the University of Chicago and former acting chair of the White House Council of Economic Advisers, whether that's for "Housing, cars or appliances." Here's a breakdown of some of the major ways a rate increase could impact you, in terms of how it may affect your credit card, car loan, mortgage, student debt and savings deposits. As the federal funds rate rises, the prime rate does as well, and credit card rates follow suit. Since the coming rate hike is largely baked into mortgage rates, homebuyers are going to pay roughly $30,600 more in interest now, assuming a 30-year fixed-rate on an average home loan of $409,100, according to WalletHub's analysis. Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you'll shell out more in the months ahead. The Fed's next move could push up the average interest rate on a new car loan past 6%, although consumers with higher credit scores may be able to secure better loan terms. Private student loans may have a fixed rate or a variable rate tied to the Libor, prime or Treasury bill rates - and that means that, as the Fed raises rates, those borrowers will also pay more in interest. While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate and the savings account rates at some of the largest retail banks, which were near rock bottom since the start of the pandemic, are currently up to 0.13%, on average.