The Fed’s latest pause still means high rates for you

By Jeanne Sahadi, CNN

New York (CNN) — After pushing interest rates up at a blistering pace — 10 straight hikes over 15 months — the Federal Reserve on Wednesday decided to hit the pause button at its latest meeting.

Where does that leave consumers? Still facing high rates in many ways that directly affect their financial lives.

“Borrowing costs are the highest in years,” said Greg McBride, chief financial analyst at Bankrate.com.

But in some instances, high interest rates can actually be good news for you. Here’s where key consumer rates stand now:

Savings are (finally) making you some money

For nearly 15 years, your bank savings were earning next to nothing thanks to chronically low rates intended to buoy the US economy.

But now you can easily garner much more, depending on the bank you choose.

The average bank savings rate as of June 7 was a mere 0.25%, according to Bankrate.com. But that’s because the savings rates at the biggest US banks pay very little — see, for instance, 0.01% at JPMorgan Chase (JPM). Why? They don’t have to compete much for deposits.

By contrast, FDIC-insured online banks have high-yield savings accounts paying between 4% and 5%.

“Continue to take advantage of these high rates with your cash. High-yield savings are great vehicles for your emergency fund and short-term goals,” said Betterment certified financial planner Sara Kalsman.

The story is similar when it comes to certificates of deposit, where you have to park your money for a fixed period of time to earn the promised rate. The average on a 1-year CD at all banks overall was 1.72% as of last week, according to Bankrate. But FDIC-insured online banks are offering rates of up to 5.3%.

But you don’t even have to lock up your money for that long to get those kinds of returns. Rates on some 3-month CDs are approaching 5.5%.

And if you buy a CD through a brokerage like Schwab, E*Trade or Fidelity, you will be able to buy CDs from any number of banks and not have to set up individual accounts with each.

If you invest $10,000 in a six-month CD with a 5% APY, you’ll get your principal back plus nearly $247 in interest when the CD matures, according to Bankrate’s CD calculator. A one-year CD will earn $500 in interest, while an 18-month term will generate $759.

Credit card rates remain at record highs

With every Fed rate hike, the lending rates that banks charge their customers — especially variable-rate credit card debt — tend to follow.

Currently, the average credit card rate is at a record high of 20.44% as of June 7, according to Bankrate.com. That’s well above the 16.3% average at the start of 2022.

That’s not a concern if you pay off your bill in full every month. But if you carry a balance, and especially if you only pay the minimum due, you will be shelling out more dollars every month just for interest, which means it will take you longer to pay off what you owe.

Your best bet in that case is to find a good balance-transfer card with an initial 0% rate for up to 21 months. Then pay off what you owe in the coming months before that 0% rate expires. If you don’t, then your remaining balance will be subject to a much higher rate — and perhaps even higher than what you had before you transferred your balance — if the Fed resumes raising rates at some point this year.

What to watch for in mortgages and home equity rates

If you want to buy a home or borrow against the one you already own, think back to the early 2000s.

“Mortgage rates are again flirting with 7%, a relic of two decades ago. [And] home equity rates are the highest in more than 20 years,” McBride said.

The average rate on a 30-year mortgage was 6.71% in the week ending June 8, down from 6.79% the week before. A year ago, the 30-year fixed rate was 5.23%.

Mortgage rates are not tied directly to the Fed’s overnight lending rate, but rather to the yield on the 10-year US Treasury note. And that yield often moves in conjunction with sentiment about inflation, which the Fed has been trying to drive downward with all its rate hikes since last year.

The good news: Inflation has been slowing for 11 consecutive months, to 4% in May, according to the latest Consumer Price Index. If it continues to do so, the 10-year yield may move down.

The bad news: Inflation is still above the Fed’s 2% target, which suggests the US central bank may hike rates again this year. Indeed, in a statement released Wednesday, the Fed left open the possibility that it could resume raising rates in the coming months if it doesn’t feel that inflation is moderating enough.

And the latest data indicate it’s getting harder to secure any type of home loan because credit has tightened.

As for fixed-rate home equity loans and variable-rate lines of credit, they are directly tied to the Fed’s moves. The average national rate on a home equity loan is 8.32% as of June 7, according to Bankrate. And the average on a home equity line of credit is 8.48%.

With both, the rate you can secure will vary depending, among other things, on the size of your loan, your credit score and where you live. For instance, for someone with a good credit score who takes out $30,000, the average rate on a home equity loan in Boston is 7.59%, but in Detroit it’s 9.81%, Bankrate found.

To help guard against future rate hikes, if you are close to buying a home, it may be a good idea to lock in the lowest fixed rate available to you — assuming you can afford the loan.

If you have already used a home equity line of credit for a home improvement project, ask your lender if it’s possible to fix the rate on your outstanding balance, effectively creating a fixed-rate home equity loan, McBride suggested.

If that’s not possible, consider paying off that balance by taking out a HELOC with another lender, at a lower promotional rate.

— CNN’s Anna Bahney contributed to this story.

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