The Federal Reserve made plans for interest rate hikes on Wednesday.
The central bank said at the conclusion of its two-day meeting that it will aggressively unwind last year's bond buying after a variety of inflation reports reached their highest levels in decades.
Although interest rates will stay near zero for now, Fed officials set the stage for the first of multiple rate hikes starting as soon as March as they look to contain soaring inflation.
The central bank said in a statement that it expects to raise the target range for the federal funds rate soon.
The Fed got the memo, said Greg McBride, chief financial analyst at Bankrate.com.
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.
Consumers will have to pay more to borrow and get less benefit from better rates on their deposits now that the central bank's easy money policies are about to end.
The Fed raised rates nine times in a three-year period in the last time it raised rates.
The cumulative effect of rate hikes is what will have an impact on the economy and household budgets.
Long-term fixed mortgage rates are rising because of the economy and inflation.
According to Jacob Channel, senior economic analyst at LendingTree, the average 30-year fixed-rate home mortgage is likely to rise to 4% by the end of the year.
The same $300,000, 30-year, fixed-rate mortgage would cost you about 1,300 a month at 3%, while it would cost 1,400 at 4%. That difference of $43 a month, or $516 a year, and$15,480 over the lifetime of the loan is what it is.
If rates go up to 4.5%, you would pay $131 a month more or another $1,572 each year, and $47,160 over the lifetime of the loan.
As rates rise, borrowers with a good credit score can still get a 30-year, fixed-rate loan with an annual percentage rate of 3% and a 15-year, fixed-rate loan with an annual percentage rate of 2%.
Bankrate said that if you are paying a rate over 4%, you can still benefit.
Channel said that buyers who are worried about how rising rates will impact them should work on boosting their credit score and saving up as much cash as possible before applying for a loan.
The higher the credit score, the better the rate they're likely to be offered.
Even though mortgage rates are rising, they are still low from a historical perspective.
Borrowing rates on credit cards will head higher even faster.
When the Fed makes a move, your credit card's variable rate will go up. Credit card rates are currently around 16.3%, down from a high of 17.85%, according to Bankrate.
"A small increase or two spread out over several months isn't going to rock most people's financial worlds."
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.
Several small rate hikes begin to add up, and for people with a lot of debt, any increase in interest is not good. People need to take action today.
If borrowers call their card issuer and ask for a lower rate, they could switch to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a personal loan.
One of the best weapons in the battle against card debt is cards with no interest on balances that are transferred.
Deposit rates will be slower to respond when the Fed raises its benchmark rate.
The Fed has no direct influence on deposit rates, but they tend to be related to the federal funds rate. The savings account rate at some of the largest retail banks is currently a mere 0.05%.
Personal Finance: Your best money moves before interest rates rise
Many banks are not going to be passing along higher rates to savers, so where you have your money parked is going to be important.
The average online savings account rate is at least three times higher than the average rate from a brick and mortar bank thanks to lower overhead expenses.
If you have $10,000 in a regular savings account, you will only make $6 in interest a year. A five-year CD could pay nearly twice as much as an online savings account, according to DepositAccounts.com.
Money in savings loses purchasing power over time because the inflation rate is higher than all of these rates.
Yiming Ma, an assistant finance professor at Columbia University Business School, said to look for other options with better rates.
She said that there are alternatives out there that will require taking on more risk but will give you increased returns.
Ma said to set aside enough cash to cover every day expenses so you are protected against the big ups and downs.
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