A quarter-percentage-point increase will not make a big difference to a credit card’s annual percentage rate or savings account’s annual percentage yield, experts say. But stack several rate increases together and consumers will start to feel the pinch.
Federal Reserve Chair Jerome Powell delivered on his telegraphed first punch in the fight against inflation — a 25 basis-point increase on a benchmark interest rate, the first in a number of potential rate hikes this year.
In Congressional testimony earlier this month, Powell previewed what he was considering at the crucial Federal Open Markets Committee meeting. That way, markets did not have to wait in the lurch when there was already so much uncertainty — due to Russia’s invasion of Ukraine — and they would not be blindsided when the increase happens.
If there are six, quarter-percent rate increases — which isn’t out of the ballpark when some observers say there could be seven hikes — that turns into a 1.5% rise for APR, Schulz said. Now the borrower has to pay $985 in interest, he said. That’s $101 extra during the life of the loan. How multiple Fed rate hikes would affect the cost of a car loan Like other rate-sensitive consumer transactions, the cost of a car loan is going to increase with a rate hike. A quarter-point hike might not translate into much of an added cost — but, again, the expectation is multiple rate increases.
For a $26,000 loan on a used car, the extra monthly costs could be around $3 and come to more than $200 extra interest in the life of a loan, he noted. Of course, when it comes to buying a new or used car now, the issue isn’t interest rate costs. It’s the price of the principal — as in the car itself. Gas prices have recently broken records too.
Savings accounts are a place to safely store easy-to-access cash, rather than to reap large returns. Extra interest yields after a rate hike will be modest at first but can pile up depending on how many rate increases occur, said Ken Tumin, founder and editor of DepositAccounts.com. Online savings accounts are the places to find the elevated APYs, not the “brick and mortar” banks, Tumin said.
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