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5 ways the Federal Reserve’s next interest rate hike could affect you

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    To keep up with the surging cost of living, consumers are spending more and saving less — and rising interest rates aren’t helping their financial picture much.

    Next week, the Federal Reserve likely will raise rates by another three-quarters of a percentage point (although some on Wall Street still think the Fed could opt for a full percentage point increase). 

    Fed officials have already raised benchmark short-term borrowing rates 1.5 percentage points this year, including June’s 75 basis point increase, which was the largest increase in nearly three decades.

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    The U.S. central bank has indicated even more increases are coming until runaway inflation shows clear signs of a pullback.  

    “With the hot month-over-month and year-over-year numbers coming in as they have, this tells the Federal Reserve it has more work to do with higher interest rates to eventually achieve its mandate of stable prices, or lower inflation, in this case,” said Mark Hamrick, senior economic analyst at

    5 ways the rate hike could affect you

    Any action by the Fed to raise rates will correspond with a hike in the prime rate and immediately send financing costs higher for many types of consumer loans, but short-term borrowing rates will be the first to jump.

    “Variable rate debt tends to follow Fed moves within one to three statement cycles,” said Greg McBride, Bankrate’s chief financial analyst.

    Here’s a breakdown of what that means for your credit card, car loan, mortgage, student debt and deposits:

    1. Credit cards

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    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and credit card rates follow suit.

    Annual percentage rates are currently at 17.13%, on average, but could be closer to 19% by the end of the year, which would be an all-time record, according to Ted Rossman, a senior industry analyst at

    That means anyone who carries a balance on their credit card will soon have to shell out even more just to cover the interest charges:

    If the Fed announces a 75-basis point hike in July, as expected, consumers with credit card debt will spend an additional $4.8 billion on interest this year alone, according to a new analysis by WalletHub. A 100-basis point increase will cost credit card users an extra $6.4 billion this year.Factoring in the rate hikes from March, May, June and July, credit card users will wind up paying around $12.9 billion to $14.5 billion more in 2022 than they would have otherwise, WalletHub found.

    2. Adjustable-rate mortgages

    Adjustable-rate mortgages and home equity lines of credit are also pegged to the prime rate. 

    Because 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, homeowners won’t be impacted immediately by a rate hike. However, anyone shopping for a new house is already going to pay more for their next home loan — the same goes for car buyers and student loan borrowers.

    Since the coming rate hike is largely baked into mortgage rates, homebuyers are going to pay roughly $29,160 to $39,240 more in interest now, assuming a 30-year fixed-rate on an average home loan of $405,200, according to WalletHub’s analysis.

    3. Car loans

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    For those planning on purchasing a new car in the next few months, the Fed’s move could push up the average interest rate on a new car loan past 5%.

    Paying an APR of 5% instead of 4% would cost consumers $1,324 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

    4. Student loans

    The interest rate on federal student loans taken out for the 2022-2023 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-2021. It won’t budge until next summer: Congress sets the rate for federal student loans each May for the upcoming academic year, based on the 10-year Treasury rate. That rate goes into effect in July.

    Private student loans may have a fixed rate or a variable one tied to the Libor, prime or T-bill rates — and that means that, as the Fed raises rates, those borrowers will also pay more in interest. How much more, however, will vary by the benchmark.

    5. Savings accounts

    On the upside, the interest rates on savings accounts are on the rise after consecutive rate hikes.

    People are going to need to this cushion as prices continue to increase, according to Nela Richardson, chief economist at payroll processor ADP.

    “Now is the time for households to prepare,” she said. “And maximizing that savings, if possible, is one of the best ways to do it.”

    Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now as high as 1.75% to 2%, much higher than the average rate from a traditional, brick-and-mortar bank.

    Still, any money earning less than the rate of inflation loses purchasing power over time. 

    “Earning 2% doesn’t mean much when inflation is at 9%,” McBride said.

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