[ad_1]
![Happy couple checking their bank account with laptop and paper on desk](https://m.foolcdn.com/media/affiliates/original_images/GettyImages-1172040755.jpg?width=1200)
Image Source: Getty Images
The average interest rate on savings accounts has tripled in one year.
Key Point
- The Federal Funds Rate is the rate at which banks and credit unions borrow and lend to each other.
- The Federal Reserve has raised interest rates five times this year to combat high inflation.
- Banks pass on higher borrowing costs to consumers, but they also raise interest rates on savings accounts.
You may have noticed that it costs more to borrow money these days. These days, you may also be making more money in your savings account. This is because major US banks have steadily raised interest rates over the past few months.
The Federal Reserve interest rate, also known as the Federal Funds Rate, is the rate at which banks and credit unions borrow and lend to each other. Determined by the Federal Reserve and subject to change at any time. These changes could impact consumers, as Federal Reserve interest rates tend to affect interest rates on credit cards, loans, and savings accounts.
If you’re wondering what this means to you, you’re not alone. Here’s how the Federal Funds Rate has changed recently and how it might affect you.
Savings: Click here to find a best-in-class savings account that earns 14 times more than a bank.
MORE: Check out the best online checking accounts for 2022
Five rate hikes this year
As of September 21, 2022, the Federal Funds Rate is between 3% and 3.25%. This is his third straight rate hike of 0.75% and his fifth rate hike this year. It’s also one of the biggest gains in decades as the Fed focuses on fighting inflation levels at his 40-year high.
According to a recent Fed statement, the Fed’s interest rate hike target is to bring inflation back to 2%. Inflation reached almost 0% during the pandemic. However, that figure has risen rapidly, reaching 5.4% a year ago and peaking at 9.1% in June 2022. Even with the Fed’s rate hikes, inflation fell only to his 8.3% in August.
Impact of rate changes
In response to interest rate hikes by the Federal Reserve, banks have also raised interest rates. Credit cards and savings accounts are the most sensitive to changes in federal funds rates, followed by personal loans, auto loans, and home loans.
Here’s how banks set interest rates on commodities and how changes in federal funds rates affect them.
credit card interest rate
Since most credit cards have variable interest rates, changes in the Fed’s benchmark directly affect the annualized interest rate (APR) of credit cards. It is directly tied to the prime rate, which is the interest rate for customers with prime credit, and is pegged to his 3% of the federal funds rate cap.
In addition, because credit cards are a short-term borrowing method, credit card rates tend to update almost immediately in response to changes in Federal Funds rates. At the time of writing this article, the average credit card interest rate was 18.44%, according to data from CreditCards.com. And the average APR for subprime credit cards was 27.12%. Also, recent interest rate hikes have pushed interest rates on many credit cards to record highs.
All of these numbers lead to higher interest rates for consumers. Now is a good time to pay special attention to the floating rates of existing credit cards. Also, if you plan to purchase a new card, keep an eye on the new card rate.
personal loan interest
Interest rates on personal loans are not directly tied to the Federal Funds Rate, but they can be affected. In addition, variable rate loans may fluctuate as Federal Funds interest rates change. For example, according to the Federal Reserve, the average interest rate for a 24-month personal loan in May 2022 was 8.73% for him (latest data available).
If you’re considering a personal loan, be sure to consider how interest rates change over time and what interest rates you’ll end up with.
ordinary deposit interest
Savings account interest rates are highly responsive to changes in the federal funds rate. The savings account’s current APY is currently at 0.17%, almost triple his 0.06% APY earlier this year, according to FDIC data. Many CD rates have also increased since the Fed hiked.
If you have a savings account, you may have seen interest rates rise once or more this year. This could be a direct result of changes in federal funds rates.
As mentioned earlier, banks have increased interest rates on these accounts as the Federal Reserve has gradually increased its own benchmark interest rates over the past year. As a result, banks have passed on higher borrowing costs to consumers and have also increased interest rates on savings accounts. So if you’re considering new banking products, or monitoring existing accounts and loans, keep an eye on the Federal Funds Rate to see how it affects your earnings.
These savings accounts are FDIC insured, allowing you to earn up to 14x the return of your bank
Many people miss out on guaranteed returns because they are running out of money in big bank savings accounts that are near-interest free.our recommendation best online savings account You can earn more than 14 times the national average savings account rate. click here We reveal our best-in-class picks that made it onto our shortlist for the best savings accounts for 2022.
[ad_2]
Source link