The Fed Just Raised Interest Rates. Here’s What That Means for Your Wallet.

Here’s a refresher on what it all means for your wallet.

Deposit accounts and C.D.s.

When the Fed raises rates, some banks may pay more interest on savings accounts, particularly when they want to lure consumers to park their money. But the big banks haven’t been too generous lately, and you shouldn’t expect much to change with the latest increase. Today, the average savings and money market deposit accounts pay a paltry 0.22 percent, according to BankRate.com. That’s up from 0.10 percent in 2015, when the Fed starting raising rates.

You also shouldn’t rush to tie up your money in certificates of deposit, which tend to move in step with similarly dated Treasury securities. Two-year C.D.s are paying just more than 1 percent on average, but you can find some paying 3 percent if you take the time to comparison-shop, according to BankRate.com.

Online Savings

You’ll probably do better with an online savings account; many are already paying more than 2 percent and are likely to rise further. “For the first time in more than a decade, you can earn more than the rate of inflation on your savings account, but only if you shop around,” said Greg McBride, chief financial analyst at BankRate.com. The inflation rate, which measures how much prices have risen from a year ago, is now roughly 2 percent. If your money isn’t earning at least that much, you’re losing purchasing power.

CIT Bank and Citizens Access are offering 2.25 percent, according to BankRate.com, and at least two other online banks are paying 2.4 percent.

Bonds

Bond investors often get nervous when interest rates rise because bond prices tend to fall in response. Why? When rates increase, the price of existing (and lower-yielding) bonds drop because investors can buy new bonds that offer higher interest rates.

Article source: https://www.nytimes.com/2018/12/19/your-money/interest-rates-consumers.html?partner=rss&emc=rss