The Fed Just Raised Interest Rates. Here’s What That Means for Your Wallet.

The Federal Reserve has raised its benchmark interest rate again — Wednesday’s increase was the fourth this year — and consumers can expect to feel it, one way or another.

Whether you will cheer or chafe at the increase depends, broadly, on whether you’re a saver or a spender. Savers and retirees seeking juicier yields will have an easier time finding savings accounts that pay more than 2 percent, a figure that looks attractive after they were starved of any interest for nearly a decade. But people trying to whittle down a pile of credit card debt, tap their home equity line of credit or purchase a car may find that it will cost a little more.

All these changes are a result of the Fed’s gradual increase in the federal funds rate, which is the interest rate banks and depository institutions charge one another for overnight loans. The rate influences how banks and other lenders price certain loans and savings vehicles — and it can have broader impact on our financial lives.

The Fed raised short-term rates by a quarter of a percentage point to a range of 2.25 to 2.5 percent, which was the ninth increase since the end of 2015. That’s still low from a historical standpoint, but it’s the highest that rates have climbed since the financial crisis a decade ago. Indeed, the latest quarter-point bump is no different than previous increases, but consumers may be beginning to feel the cumulative effect in a more pronounced way.

Here’s a refresher on what it all means for your wallet.

When the Fed raises rates, some banks may pay more interest on savings accounts, particularly when they want to lure consumers to park their money. But the big banks haven’t been too generous lately, and you shouldn’t expect much to change with the latest increase. Today, the average savings and money market deposit accounts pay a paltry 0.22 percent, according to That’s up from 0.10 percent in 2015, when the Fed starting raising rates.

You also shouldn’t rush to tie up your money in certificates of deposit, which tend to move in step with similarly dated Treasury securities. Two-year C.D.s are paying just more than 1 percent on average, but you can find some paying 3 percent if you take the time to comparison-shop, according to

You’ll probably do better with an online savings account; many are already paying more than 2 percent and are likely to rise further. “For the first time in more than a decade, you can earn more than the rate of inflation on your savings account, but only if you shop around,” said Greg McBride, chief financial analyst at The inflation rate, which measures how much prices have risen from a year ago, is now roughly 2 percent. If your money isn’t earning at least that much, you’re losing purchasing power.

CIT Bank and Citizens Access are offering 2.25 percent, according to, and at least two other online banks are paying 2.4 percent.

Bond investors often get nervous when interest rates rise because bond prices tend to fall in response. Why? When rates increase, the price of existing (and lower-yielding) bonds drop because investors can buy new bonds that offer higher interest rates.

But higher rates also mean that bonds will generate more interest income, which is good for investors over the long run.

The average person who invests in bonds does so through some kind of mutual fund. To get a sense of how your bond fund may react to rising rates, take a look at its duration, a number that you can look up on your fund provider’s website. It’s a complex calculation that combines interest payments and the bond’s maturity date to measure the investment’s sensitivity to rate changes. The longer the duration, the more sensitive the bond.

A good way to estimate the effect of an interest rate change: A rate increase of 1 percent will reduce an investment’s value by a percentage equal to the duration. For example, a fund like the Vanguard Total Bond Market Index Fund, which has an average duration of 6.3 years, would decline by about 6.3 percent if interest rates rose a full percentage point.

But fear not, that’s not the full picture: A fund like that also pays investors interest, and will soon be adding new bonds paying a higher rate. That offsets some of the decline in value.

Many people think mortgage rates are tied to the Fed’s short-term rate, but there is no direct link. Most 30-year fixed-rate mortgages are priced off the 10-year Treasury bond, which is influenced by a variety of factors, including the outlook for inflation and long-term economic growth here and abroad.

But some home loans are more directly connected to the Fed’s action, including home equity lines of credit and adjustable-rate mortgages, or A.R.M.s.

A typical home-equity borrower has already seen rates rise to about 6.5 percent, according to, from roughly 4.5 percent three years ago. And now rates will probably move a quarter-point higher.

The Fed’s latest rate increase won’t be “too damaging,” said Keith Gumbinger of, which tracks the mortgage market. But the combination of the recent increases and changes in the tax code that restricted the interest deduction “is a bit of a double pinch for some.”

The good news related to adjustable-rate mortgages — which typically have a fixed rate for a certain number of years, and then adjust each year thereafter — is that few people have them, Mr. Gumbinger said. But borrowers who are already out of their fixed-rate period and are set for an annual reset in December can expect to pay more. They will most likely see a rise to about 5.36 percent for 2019, up from a rate of 4.3 percent over the past year.

For the sake of comparison, rates on 30-year fixed mortgages are now about 4.75 percent. That’s still favorable from a historical standpoint, and those loans are usually the most practical for most buyers.

Credit-card holders with variable rates — averaging around 17.6 percent, up from about 15.7 percent at the end of 2015, according to — can expect their rates to rise another quarter-point within one or two monthly cycles.

While the rate hikes’ cumulative effect is beginning to squeeze car buyers, the latest increase probably won’t change your decision to finance a car. It would only your raise monthly payments by a few dollars a month on a $25,000 loan that will be repaid in five years.

Since the Fed started raising rates, however, the annual percentage rate on a car loan has increased by more than a percentage point. The average rate was 6.03 percent in November, up from 4.58 percent three years earlier, according to Edmunds. November was the second consecutive month that rates remained above 6 percent. And consumers are being offered fewer zero-percent deals.

Those paying off federal student loans don’t have to worry, because they carry a fixed rate. The next round of new loans will have their rate set in July, based on the 10-year Treasury bond. But private student loans generally base their fixed and variable rates on the Libor index, which tends to track the Fed funds rate pretty closely. So students in that market can expect to see a more immediate increase.