The target federal funds rate was raised by 0.75 percentage points, the largest increase in nearly three decades, at the end of the Federal Reserve's two-day meeting.
The motivation for all of this is that prices are going up, said Chester Spatt, a professor of finance. The Fed is trying to lower demand by raising interest rates.
The latest move is part of a cycle that aims to crush inflation without tipping the economy into a recession. The last rate hike by the Fed was in 1994.
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"It had been 22 years since they raised rates by more than a quarter of a percentage point and now to be doing so at successive meetings, it really speaks to the seriousness of the situation."
Consumers could eventually get relief from surging prices. It comes at a price.
The interest rate at which banks borrow and lend to one another is called the federal funds rate. Borrowing and saving rates are affected by the Fed's moves, even though the rate that consumers pay isn't that high.
The cost of borrowing is going to increase quickly.
Paying down debt, especially costly credit card and other variable rate debt, and increasing savings are some of the steps consumers should be taking to stabilizing their finances.
Since most credit cards have variable interest rates, short-term borrowing rates are going to go up.
According to Ted Rossman, a senior industry analyst at CreditCards.com, the average credit card rate could be as high as 19% by the end of the year, making it the highest rate on record.
If the credit card interest rate goes up to 18.61% by the end of 2022, it will cost you an additional $832 in interest charges over the lifetime of the loan.
If you have a high-interest credit card, he advised you to consolidate it with a lower interest home equity loan or personal loan or use an interest-free balance transfer credit card.
Spatt said that consumers with home equity lines of credit might want to switch to a fixed rate.
Longer-term 15-year and 30-year mortgage rates are tied to Treasury yields and the economy so homeowners won't be affected by a rate hike.
The average interest rate for a 30-year fixed-rate mortgage has gone up more than three percentage points since the beginning of the year.
It is difficult to say how much higher mortgage rates will go by year's end given that they have already gone up so dramatically.
A 30-year fixed-rate mortgage on a $300,000 loan would cost you about $1,200 a month. It would cost you an extra $570 a month or $6,840 more a year if you paid 6.28% instead.
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising, so if you are planning to finance a new car, you'll shell out more in the months ahead
Most borrowers will not be impacted by a rate hike immediately. As the Fed raises rates, borrowers will pay more in interest, although how much more will vary by the benchmark
It's a good time to identify the loans you have outstanding and see if you can get a better deal on them.
The Fed's influence on deposit rates is related to the federal funds rate. The savings account rate at some of the largest retail banks is barely above rock bottom.
Where you have your savings is important because the rates paid by bigger banks are mostly unchanged.
The average online savings account rate is close to 1%, which is higher than the average rate from a brick-and- mortar bank.
If you have money sitting in a savings account earning 0.05%, moving that to a savings account paying 1% is an immediate twentyfold increase with further benefits still to come.
High-yield savings accounts are not as good as top-yielding certificates of deposit.
Money in savings will lose purchasing power over time because the inflation rate is higher than all of these rates.
There is a chance to buy some I bonds from the U.S. government.
The highest yield on record can be found in these inflation-protected assets, which are nearly risk-free.
You will get a better return than a savings account or a one-year CD if you have purchase limits.
The interest rates are going to go up in the coming months.
Despite the Fed raising rates multiple times this year, more hikes are on the way as the central bank deals with inflation.
If inflation doesn't start to cool down, the central bank could give out further hikes of 50 or 75 basis points.
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