What the Fed’s Rate Hike Means for Borrowers (and Banks)

The Federal Reserve approved its second interest rate hike of 2017 last week. It decided to bump the rate by an additional 0.25% to a new target rate of 1.25%. In the aftermath of this move, let’s talk about the effects it may have on your everyday finances.

Every time an interest rate move takes place, consumers are affected, whether they realize it or not. The good thing about the current rate-hiking cycle is that the Fed keeps raising rates gradually, allowing the economy to adjust. But the cumulative impact of the increases is growing.

Start with credit cards. New credit cards will now have slightly higher rates. And since many existing cards have adjustable rates, your monthly payment on any existing balance will increase.

It won’t be anything to make you go bankrupt, but debt will get a bit more expensive. So if you have large amounts of credit card debt, you might want to consider taking one of those “0% balance transfer for 12 months” offers that keep coming in the mail. Then pay the balance off before the Fed hikes rates even higher.

Based on an analysis of the banking industry’s regulatory filings, U.S. financial institutions have grown their credit card and revolving line of credit balances three-fold since 2000. Specifically, those balances rose from $251 billion in 2000 to $783.3 billion by 2016. That suggests banks will be able to make some extra cash on outstanding balances.

But let’s not forget, they will now also have to pay a bit more to depositors who keep their cash with them and help finance bank operations. In other words, you could end up getting a bit extra in interest on your savings account.

Below are ten banks with the largest credit card balances in 2016. They may stand to make some extra interest income. However, their other rate-sensitive assets and liabilities must be managed properly in order for them to profit from the changing interest rate environment.

Citibank, N.A. took the top spot with a little over $150 billion in credit card balances, up 11% since 2015. Bank of America was in the second spot with $119.5 billion. But this was a drop of 7% since last year. Overall, the ten banks listed below held 86% of the entire banking industry’s credit cards and revolving lines of credit.

10 Banks with Largest Credit Card Balances in 2016

Meanwhile, you could also end up paying a bit more if you have an adjustable rate mortgage or home equity line of credit. Mortgages and auto loans with fixed rates will probably not see a spike in interest changes immediately, as they are less sensitive to short-term interest rates.

The bottom line is that many of us won’t feel a huge difference from the recent rate hike. But new loans and existing adjustable rate credit agreements will see a change in rates and may cost you extra. Plus, if you have large credit card balances, coming up with an aggressive pay-off plan may be a good idea as the Fed is likely not done with the rate hikes.

Looking for more information about the Fed, and how its rate hikes impact you? Well, that’s covered in extensive detail in my colleague Mike Larson’s blockbuster investor and consumer education course How to Pile Up Profits from the Greatest Interest Rate Cycle in 5,000 Years.

It covers everything you need to know about how rising rates impact your stocks, bonds, ETFs, real estate investments, and personal financial products. It also gives you access to a special report containing specific investment recommendations. Those picks are designed to help you generate significant profits from the recent rate hike — and every other one that follows it.

You can enroll immediately in the course … before the NEXT Fed rate hike … by clicking here.

Remi Lukosiunas

Money and Banking Edition, By Remi Lukosiunas, Financial Analyst Remi Lukosiunas, a Financial Analyst, joined Weiss Ratings in 2014 with a financial services background in internal audit and the credit union industry. Remi conducts banking, credit union, insurance and investment research. He has also written extensively on stocks and investing using ratings as a guide. Remi is a graduate of Florida State University with a degree in multinational business.