The days of rock-bottom rates are almost over.
The central bank will be more aggressive in ending last year's bond buying than originally planned after recent reports of inflation continued to show a sharp rise in prices.
The Federal Reserve said on Wednesday that interest rates will stay near zero for now, but that they will start to rise next year.
Greg McBride, chief financial analyst at Bankrate.com, said that interest rates are likely to start climbing in 2022.
The central bank sets the federal funds rate, which is the interest rate at which banks borrow and lend overnight. The Fed's moves affect the borrowing and saving rates they see every day.
Yiming Ma, an assistant finance professor at Columbia University Business School, said that reducing the purchase of long-term assets is likely to reflect a faster increase of long-term interest rates.
The low borrowing rates of the Fed have made it easier to get cheaper loans and less desirable to keep cash.
Consumers will pay more to borrow now that the central bank is ending its easy money policies. Some already are.
Long-term fixed mortgage rates will go up as the Fed reduces its bond purchases, since they are influenced by the economy and inflation.
The average 30-year fixed-rate home mortgage has risen to 3.24%, and is likely to climb to 4% by the end of 2022, according to Jacob Channel, senior economic analyst at LendingTree.
The same $300,000, 30-year, fixed-rate mortgage would cost you about $1,297 a month at 3.2%, while it would cost about $1,432 at 4%. The difference of $135 a month and $1,620 a year is $48,600 over the lifetime of the loan.
Channel said that there is still time for people with good credit to get a rate below 3%.
If you have a good credit score, you can get a 30-year, fixed-rate loan with an annual percentage rate of 2.65% and a 15-year, fixed-rate loan with an annual percentage rate of 2.35%, according to Lending Tree.
Refinancing a mortgage can still trim $100 to $200 off of your monthly payment, and that provides valuable breathing room when the cost of so many other things are on the rise.
Homeowners with home equity lines of credit, which are pegged to the prime rate, could also be impacted by a rise in the federal funds rate.
Channel said that higher rates are likely to decrease demand for new housing, which could lead to a greater selection of homes to choose from in the future.
Even at 4%, rates would still be low from a historical perspective.
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Credit cards are cheap by historic standards, as are other types of short-term borrowing rates.
Credit card rates have fallen from a high of 17.85%. Since most credit cards have variable rates, they won't change much until the Fed makes a move.
The prospect of interest rate hikes in the not-too-distant future means it is really important for people to focus on knocking down their card debt today.
It will take 25 months to pay off a credit card with an interest rate of 19% if you put $250 a month towards the balance. If the rate goes up to 20%, you will pay an extra $73 in interest.
There are still plenty of zero-percent balance transfer offers available.
For anyone who is deep in debt, there are cards with no interest on transferred balances that are worth considering.
Savers have a different story.
The Fed has no direct influence on deposit rates, but they are related to the federal funds rate. The savings account rate at some of the largest retail banks is currently 0.05%, which is near the bottom.
Deposit rates are slower to respond when the Fed raises its benchmark rate.
If you have $10,000 in a regular savings account, you will only make $6 in interest a year. Ken Tumin, founder of DepositAccounts.com, said that a five-year CD could pay nearly twice as much as an online savings account.
Money in savings is lost over time because the inflation rate is higher than all of these rates.
Money market funds, bond mutual funds or bond ETFs are some of the options that Ma advised consumers to pay attention to.
She said that there are alternatives that will require taking on more risk but will also have increased returns.
Ma said that banks have been slow to increase what depositors can earn on their accounts. It may make sense to look at different options.
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