For the second time this year, the Federal Reserve on Wednesday hiked its benchmark interest rate, this time from 1.75% to 2%. The central bank also signaled that two more rate increases are likely coming later this year.
So what does this change mean for your wallet? While rising rates indicate that the economy is getting stronger, the bottom line is that borrowing will become more expensive. When the federal funds rate goes up, so does the interest rate at which banks borrow short-term money—and banks generally pass that increase on to consumers.
Here are three moves you should make in the coming months to both protect yourself from and take advantage of climbing interest rates.
1. Transfer Your Credit Card Balances to a Low Interest Credit Card
Credit card interest rates follow the trend of the federal funds rate, meaning the APRs on your credit cards likely will climb. (The current average interest rate on credit cards is 17.01%, up from 16.84%, which was the average rate at the time of the last Fed rate hike.) Look for a low-rate balance transfer offer to whittle down your credit card debt, because it's only going to get harder to pay it off as rates increase.
The balance-transfer deals are good right now, but they're not expected to last which is why it's important to move quickly.
One excellent option: The Amex EveryDay® Credit Card from American Express. Get 0% on purchases and balance transfers for 15 months, and if you make the balance transfer within the first 60 days of opening the account, you pay no balance-transfer fee. This is one of the best deals available right now, and may not last long.
You'll also want to pay down any credit card and other variable-rate debt as aggressively as possible. Eliminating your credit card debt will also have a positive influence on your credit scores. The higher your credit scores, the better access you will have to the lowest interest rates available.
2. Consider Refinancing HELOCs and ARMs Into a Fixed-Rate Loan
If you have a home equity line of credit (HELOC) or an adjustable-rate mortgage (ARM), you can expect its rates to go up as well. That's why it may be a good time to consider refinancing your HELOC or ARM into a fixed-rate product to lock in a rate that is not going to go up during the duration of the borrowing period.
And if you're thinking about buying a new home, start shopping around for that mortgage. Other prospective home buyers will be getting in the game. "Historically what I've seen is when there are signs of increasing rates, the consumer tends to get off the fence," Paul Diamond, chief executive of Diamond Residential Mortgage Corp., told the Wall Street Journal.
3. Take Advantage of Better Savings Rates
Of course, a rate increase is not all bad news. After years of earning next to nothing on savings accounts, savers are finally starting to see some decent returns. While the average interest rate on savings at banks is a paltry 0.09%, there are plenty of better deals available.
Shop around for the best deals on savings accounts at online banks, which tend to offer better rates than their brick-and-mortar counterparts. For example, Synchrony Bank offers an online savings account at 1.75%.
You may also want to consider putting some extra cash into a 12-month certificate of deposit (CD). A 12-month CD gives you access to a higher savings rate today (2.25%-2.3% currently) and gives you the ability to reinvest the money in a year when even higher rates will likely be available.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on June 14, 2018, and has been updated.