There’s more bad news for anyone carrying credit card debt, but good news if you’re saving money. The Federal Reserve had its policy meeting on June 13-14 and, in the end, announced that its benchmark rate would go up by a quarter percentage point to a (still relatively low) range of 1 percent to 1.25 percent. That’s the third time the country’s central bank has raised rates in the past six months.
Back up. What does that even mean?
When the Federal Reserve, or Fed, adjusts its target benchmark borrowing rates, that affects the “federal funds” rate, another term for the rate that banks use to lend money to one another. If that rate goes up, you can be sure that the rate banks are charging to lend money to us will go up, too.
Since most credit cards have a variable rate, for example, an increase in the benchmark rate means an almost immediate increase in the interest you’re paying on your credit card balance. In other words: your debt just got more expensive.
How much more expensive?
According to credit bureau TransUnion, when the Fed raised rates by .25 percent in December, it resulted in an average $18-a-month cost for debt holders.
And Wallethub estimates the latest .25-percent increase will cost credit card users roughly $1.5 billion overall in extra finance charges this year. In fact, you may see the effect as soon as your next credit card statement.
If you’re a homeowner and have an adjustable rate home equity line of credit (or HELOC), you’ll also see an increase in the interest you’re paying.
Give me some good news.
As quick as banks have been to pass rate hikes on to borrowers, their terms allow them to drag their feet on raising rates on their savings accounts. But, after a few increases from the Fed, they’re finally starting to pass the rate increase on to savers.
In early June, Goldman Sachs Bank raised the interest rate on its online savings account by .15 percent to 1.2 percent. Discover Bank also increased the rate on its online savings account—for the second time in the past couple of months—to 1.1 percent.
Sure, it’s still not a huge yield, but it’s way better than we’ve seen lately. The average national rate on savings accounts is still just 0.08 percent, according to Bankrate.com. That's less than a penny for every $100 you put into your savings account. Ouch.
Where can I earn the most for saving?
Well, with two major banks already pushing up their savings account rates, other banks may feel pressured to follow suit.
In the meantime, you'll have to look for savings accounts with high yields. Online savings accounts are likely to be your best bet. "They tend to follow the Fed more closely than a lot of the brick and mortar banks, so you’ll get an immediate bump from the higher rate,” says consumer banking expert Ken Tumin of DepositAccounts.com. (You can check his site or Bankrate to compare rates on various savings accounts.)
Tumin also recommends looking to short-term certificates of deposit (or CDs). You can’t touch your money for six months to a year; but, in return, you'll be rewarded with a slightly higher interest rate. The highest-paying one-year CDs are now paying about 1.4 percent interest—and that number is likely to increase in the coming weeks.