Donna LeValley
The economy is strong, unemployment is low and inflation is receding. The Federal Reserve decided to continue to pause interest rates hikes at their last meeting.
The central bank's rate-hiking campaign to tame inflation might be over, although the Fed's policy statement noted that the Committee remains "highly attentive" to the risks of inflationary pressure. Either way, the long-awaited "Fed pivot" seems to be on hold a bit longer. "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." Rate hikes traditionally favor savers and lenders. Borrowers and those paying down debt usually feel most of the pain.
Rate hikes are a blessing and a curse for consumers. You’ll pay higher interest rates on credit cards, home equity lines of credit, private student loans and more. And although you may not notice a rate bump in the beginning, if the Fed continues to pause rates and signal that cuts are still on hold, your plans to repay any debt could get tougher. The good news is that savings rates tend to nudge up across the board, albeit slowly. Deposit levels are at record highs, so banks are less inclined to boost rates sooner.
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Manage your debt. Think of the rate-hike process as similar to the seasons changing — it happens gradually, says Greg McBride, chief financial analyst for Bankrate.com. If you have debt you are determined to pay off, he adds, you want to get a handle on it now.
For those carrying credit card debt — especially if it has a high interest rate — take advantage of a card with a 0% or low-rate introductory offer on balance transfers. If you can pay the entire balance during the interest-free period, you’ll pay off your debt and avoid interest rate creep.
For example, the Citi Simplicity® Credit Card doesn’t charge interest on balance transfers for the first 21 months. You’ll have to pay a balance transfer fee of $5 or 3% of each transfer amount (whichever is greater).
If you have a home equity line of credit and your lender allows rate locks, consider “fixing” or locking in a lower rate on some or all of your outstanding balance. HELOCs established in the past 10 years typically allow borrowers the option of creating a loan within their credit line. As you make payments on the loan, the credit line is replenished.
A boon for savers. Savers will get the best rates from savings and money market deposit accounts that are already providing top yields. You’ll typically find those accounts at online banks or other online financial institutions. Savers could be earning a rate close to the federal funds rate by the time the Fed is done raising rates.
One high-rate account worth checking out is CloudBank 247 which yields 5.26% and requires a $1 minimum opening deposit. Affinity Plus Federal Credit Union offers a money market account yielding 4% on balances up to $25,000 and portions over $25,000 earn 3.500%
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