Fed raises rates to fight inflation

The Federal Reserve raised its benchmark rate by a quarter point to 3.75-4.0% in September, despite pressure from President Trump to cut rates. Stubborn inflation forced the central bank's hand.

How the Fed rate affects you

The federal funds rate is what banks charge each other to borrow overnight. While you don't borrow at that rate directly, it ripples through the economy and shapes what you pay for credit cards, mortgages, car loans and what you earn on savings.

Credit card rates rise quickly

Most credit cards have variable rates tied to the prime rate, which moves with the Fed's benchmark. Cardholders should expect their APR to rise within a couple of billing cycles, costing roughly $2 billion in extra interest charges over the next year.

“Cardholders should expect their credit card's APR to rise a quarter-point in the next couple of months following the Fed's move.”

Mortgages may rise, but not immediately

Fixed 15- and 30-year mortgage rates track the 10-year Treasury yield, not the Fed rate directly. They may rise eventually as bond yields respond to inflation expectations, but homeowners won't see immediate changes.

ARMs and HELOCs adjust right away

Adjustable-rate mortgages and home equity lines of credit are pegged to the prime rate. HELOCs adjust immediately, while most ARMs adjust once a year, making them vulnerable to the Fed's rate increase.

Car loan rates climb for new buyers

Auto loan rates lock in when you buy, so existing borrowers are unaffected. But new car buyers face higher rates on top of already elevated auto loan rates and vehicle prices averaging $50,000.

Federal student loans stay fixed

Federal student loan rates are fixed for the life of the loan, so current borrowers aren't affected. But private student loans with variable rates tied to benchmarks will cost more as the Fed rate rises.

Savings accounts finally pay better

The silver lining: deposit rates tend to track the federal funds rate. High-yield savings accounts, CDs and money-market accounts will offer stronger returns as the Fed raises rates.

“It's a great time to shop for an online high-yield savings account, CD or money-market account.”

Wealthier households weather it better

Older, wealthier households are less likely to need to borrow and often have low-rate pandemic mortgages locked in. They'll benefit from higher savings rates while avoiding the pain of rising borrowing costs.

“Wealthier and generally older households will navigate higher rates better, as they are less likely to need to borrow.”