How the Federal Reserve's Rate Decisions Affect Your Wallet

Eight times a year, the Federal Reserve's Federal Open Market Committee (FOMC) meets to set its target for the federal funds rate, the rate banks charge each other for overnight loans. The Fed raises it to cool inflation and lowers it to support growth and employment. Those decisions ripple through almost every rate you pay or earn.

Credit cards

Most card APRs are variable and tied to the prime rate, which moves almost in lockstep with the fed funds rate. A Fed move typically shows up on your card within one or two billing cycles.

Savings accounts and CDs

High-yield savings rates tend to rise quickly after hikes and drift down after cuts. Locking in a CD can preserve a higher yield if cuts are expected.

Mortgages

Fixed mortgage rates follow the 10-year Treasury yield more than the Fed's rate directly. Markets often price in expected Fed moves in advance, so mortgage rates can move before or even opposite to a Fed announcement. Adjustable-rate mortgages and HELOCs respond more directly.

Auto and personal loans

New loan rates generally rise and fall with the Fed, though your credit score matters just as much. Existing fixed-rate loans do not change.

Student loans

Federal student loan rates are fixed for the life of each loan and set once a year based on Treasury auctions. Variable-rate private student loans can change with benchmark rates.

What to do

• When rates are rising: pay down variable-rate debt and shop for higher savings yields.
• When rates are falling: consider refinancing high-rate debt and locking in CD yields before they drop.

The bottom line: you cannot control the Fed, but you can control how much variable-rate debt you carry and where you keep your savings.

This guide is for general information only and is not financial advice. See our Disclaimer.