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Here’s how you can prepare if the Fed raises rates by 50 basis points


Consumers are spend more to keep up with the rising cost of living and it could get worse before it gets better.

“While wage growth was the best in decades, it was still outweighed by rising household costs,” said Greg McBride, head of financial analysis at Bankrate.com. “With inflation at a 40-year high, that worries people.”

After Federal Reserve raises interest rates For the first time in more than three years, Chairman Jerome Powell announced tough action on inflation, which he said would jeopardize a strong economic recovery.

They have to catch up and they won’t do it with small steps.

Greg McBride

Chief Financial Analyst at Bankrate.com

Now expected The central bank will raise interest rates by half a percentage point at its meeting this week.

“The Fed is behind the curve, they have to catch up and they’re not going to do it in small steps,” McBride said.

This move will correspond to an immediate and basic interest rate increase send higher financial costs for a variety of consumer loans.

Where will interest rates go up?

Consumers will see interest rates on their short-term loans, especially on creditamong the first to jump.

Since most credit cards have variable rates, there is a direct relationship to the Fed’s benchmark, so your annual percentage will increase with each Fed move, usually within a short period of time. or two billing cycles.

Adjustable-rate mortgages and home ownership line of credit is also fixed to the base rate. Most ARMs tune once a year, but HELOC adjusts immediately.

Because 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, homeowners won’t be immediately affected by rate hikes. However, anyone buying a new home will have to pay more for their next one home loans (same for car buyers and student loan).

“The anticipated increase has been built into mortgage rates,” Holden Lewis, house and handicap expert at NerdWallet.

The average interest rate on a 30-year mortgage rose to 5.37% last week, its highest since 2009 and is also forecast to continue higher this year.

Here are three ways to stay ahead of rising rates.

1. Debt repayment

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If you’re carrying a balance, try calling your card issuer to request a lower rate, consolidation, and lower interest rate credit card payments. home loans or personal loan or switch to an interest-free balance transfer credit card.

“The 0% balance transfer cards still work great,” says Rossman, adding that cards that offer 15, 18, and even 21 months of zero interest on transferred balances are “a great way to go.” Great for saving hundreds, maybe thousands of dollars in interest.”

2. Find a better savings rate

Although the Fed has no direct influence on deposit rates, they tend to correlate with changes in the target federal funds rate. The result is, savings account rates at some of the largest retail banks already hovering near the rock bottom, the average is now just 0.06%.

Because inflation rates are much higher today, any savings lose purchasing power over time.

“The worst thing would be if your borrowing costs go up but you don’t benefit from a higher savings rate,” said Yiming Ma, assistant professor of finance at Columbia University Business School.

Thanks in part to a reduction in overheads, the average online savings account rate is often higher than the rate from a brick-and-mortar bank.

Meanwhile, the highest yield Rate CD are on average over 1% – even better than a high yield savings account.

CDs that offer the highest yields typically have higher minimum deposit requirements than online savings accounts and require longer maturity. That means money is not as accessible as in a savings account.

“You shouldn’t put money in emergency savings because of the prospect of big returns,” says McBride. “It’s the buffer between you and your 17% credit card debt when there’s an unplanned expense.”

However, “if you have savings to spare, think about deposits that can be put aside,” Ma added. “Now is the time to take advantage of that rate increase.”

3. Increase your credit score

As a general rule, the higher your credit score, the better off you are.

Borrowers with good or excellent credit (usually over 700 or 760, respectively) will qualify for lower interest rates, and that will last as financing costs increase.

According to Francis Creighton, president and CEO of the Consumer Data Industry Association, for example, taking one percentage point off a new car loan can save up to $50 a month.

For a 30-year mortgage, even a slightly higher interest rate can mean hundreds of monthly savings.



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