As the U.S. economy continues to prosper in Boston and around the nation, the Federal Reserve has responded with a quarter-point interest rate increase. Economic growth and newly created jobs are two of the driving forces behind the rate hike.
Whenever there is a rate increase, it’s going to affect consumers in different ways. Below are a few examples of how this latest increase may impact your finances.
Home-equity credit line rates will cost more
Taking out a line of credit related to the value of your home remains a smart way to pay off large debts or invest in home improvement projects. That’s because any interest paid on funds borrowed with these credit lines is usually tax-deductible.
When applying for home-equity lines of credit, people with a credit score of 700-850 will receive the best rates, which range from 3.5 percent to almost 8 percent, according to Bankrate.
Carrying a credit card balance will cost more in finance charges
Paying off the entire balance on a credit card each month means you shouldn’t incur extra fees. However, carrying over a balance each month on a card with a variable interest rate will cost you more in finance charges.
The average variable rate is nearly 16.5 percent – adjusting this rate means an additional $1.6 billion dollars in finance charges for U.S. consumers in 2017. This type of increase will be felt the most by people who are living month to month. One way to offset the increased cost is to shop around for a card with lower interest rates.
Savings rates will improve
While these rates will see an uptick, it will be slight and won’t result in large returns for people with investments in insured deposits. Shopping around for competitive rates is a must – online banks have been known to offer better savings rates than traditional banks with brick-and-mortar branches.
As the U.S. economy continues churning along, the Fed’s rate hike signals confidence that the country has recovered from the 2008 economic meltdown and that inflation is under control.
Most importantly, if these economic trends continue, there’s a real possibility the Fed will raise the rate again this summer.