The economy is strong, unemployment is low and inflation is receding. The Federal Reserve decide to pause interest rates hikes at the September meeting and also held rates steady in November.
However, the central bank's rate-hiking campaign to tame inflation isn't necessarily over. "Whether the central bank will go for a third straight "hawkish pause" at the next Fed meeting in December remains an open question" writes Kiplinger's Dan Burrows. 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 raise rates, 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.
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 U.S. Bank Visa® Platinum Card doesn’t charge interest for the first 21 months. You’ll have to pay a balance-transfer fee of $5 or 3% of the amount transferred (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 3.000%
Rivan joined Kiplinger on Leap Day 2016 as a reporter for Kiplinger's Personal Finance magazine. A Michigan native, she graduated from the University of Michigan in 2014 and from there freelanced as a local copy editor and proofreader, and served as a research assistant to a local Detroit journalist. Her work has been featured in the Ann Arbor Observer and Sage Business Researcher. She is currently assistant editor, personal finance at The Washington Post.