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Fed Increases Interest Rate, Time to Check Yours

money in wallet

Well, it happened. The Federal Reserve raised interest rates in response to signs of a stable and strengthening economy. This is the second rate increase by the Federal Reserve in the last 10 years (the last one came in December 2015), following a period of low rates designed to promote quicker economic growth in the United States and worldwide after the recession of 2008.

These are all good things to know from a macroeconomics standpoint, but what does it mean for the everyday consumer?

The quick answer is: not much in the short term.
A common motivation for the Fed increasing interest rates is to combat inflation when there is more cash readily available to the population. With a higher interest rate helping to potentially curtail inflation, it could mean that the money you have actually retains more of its value. Over the course of a year, the result could be that you’re able to afford a few extra cups of coffee throughout the year since your money is retaining more of its value; however, it shouldn’t necessarily change the way you budget and act. Interest rate increases are felt more with lenders and with large volumes of money.

How much is the Fed short-term lending interest rate increase?
0.25%. The overall rate is increasing from 0.50% to 0.75%.

What is the catalyst for whether interest rates increase or decrease?
In a simplified way, economic growth. If current “slow and steady” growth continues over the next couple of years, we can expect the interest rates to have more frequent increases over the next 2 years, according to the Fed.

What does this mean for your everyday?

    • Mortgage loans:

If you have a fixed-rate loan, then this increase won’t impact your mortgage payment. If you have an adjustable or variable rate loan, you could see slightly higher payments soon. It’s a good time to consider refinancing to a fixed-rate loan if the Fed continues to increase interest rates over the course of the next year.

    • Auto loans:

If you currently have a fixed-rate loan, then the increase won’t affect your car payment. However, this doesn’t mean you can’t save money. Auto refinancing is offered through Lending Club, so do a quick check to what you can save!
If you’re in the market for a new car, then the rate hike will slightly increase your financing rates but it’s a small enough increase that it won’t have a big impact. Using coffee cups as a tool of measurement, you may be able to afford one less cup of coffee per month as a result.

  • Credit cards:

Here’s the area where you can save money with a debt consolidation loan through Lending Club. Credit card interest rates can be impacted by the Fed’s increased interest rate on short-term lending, so you could be seeing the APR on your statements increase soon as a result.
Here’s a tip: consolidate your credit card debt with a personal loan to protect yourself from future interest rate increases while eliminating high-interest debt from credit cards at the same time. Lending Club customers reduce their interest rate by an average of 30%1when they consolidate their debt. Check out our personal loan calculator to see what your savings could be!

To sum it up, a 0.25% increase in the interest rate won’t ruin your monthly budget or your long-term plans but it’s important to make every dollar count. You worked to earn the money, so now is the time to put in the work to make sure you keep more of it.

Check Your Rate

1Based on responses from 14,827 borrowers in a survey of 76,365 randomly selected borrowers conducted from 1/1/16 – 10/1/16. Borrowers who received a loan to consolidate existing debt or pay off their credit card balance reported that the interest rate on outstanding debt or credit cards was 21% and average interest rate on loans via Lending Club is 14.6%. The origination fee ranges from 1% to 6% and the average origination fee is 5.47% based on origination volumes from 7/1/2016 to 9/30/16. Best APR is available to borrowers with excellent credit. All loans made by WebBank, Member FDIC.

Sources:

http://www.cnbc.com/2016/09/12/how-exactly-will-a-fed-rate-hike-impact-your-wallet.html
http://www.wsj.com/articles/fed-raises-rates-for-first-time-in-2016-anticipates-3-increases-in-2017-1481742086
http://fortune.com/2016/12/14/federal-reserve-interest-rates-you/

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