What the Fed’s Moves Mean for Mortgages, Credit Cards and More (2024)

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What the Fed’s Moves Mean for Mortgages, Credit Cards and More? ›

What the Fed's Moves Mean for Mortgages, Credit Cards and More. Higher rates benefit those who can save, but for borrowers falling rates would reduce bills on credit cards, home equity loans and other forms of debt. The average 30-year mortgage rate was 6.74 percent as of March 14. Amanda Lucier for The New York Times.

"Ultimately, with the changes of the fed funds rate, the prime rate also changes, which then in turn increases or decreases the APR on your credit card," says John Jones, investment advisor representative at Heritage Financial. Credit card companies usually charge interest as the prime rate plus a markup.

But while the Fed raised its benchmark rate fast and furiously in 2022–2023, it's expected to lower rates at a much slower pace. As a result, any mortgage rate improvements are also expected to be more gradual than dramatic.

While the Federal Reserve doesn't directly set mortgage rates, it influences them by making changes to the federal funds rate, the interest rate that banks charge each other for short-term loans. The Fed's decisions alter the price of credit, which has a domino effect on mortgage rates and the broader housing market.

Card rates are high because they carry more risk to issuers than secured loans. With average credit card interest rates above 20.7 percent, the best thing consumers can do is strategically manage their debt. Do your research to make certain you're receiving a rate that's on the lower end of a card's APR range.

There is speculation that FedNow-powered products could replace—or at least reduce—the use of debit and credit cards. But credit card companies aren't worried; Vasant Prabhu, CFO of Visa, said that Visa doesn't fear competition from not only the FedNow Service, but any real-time payment system.

The Fed's decisions influence where banks and other lenders set interest rates. Higher Fed interest rates translate to more expensive borrowing costs to finance everything from a car and a home to your purchases on a credit card.

Financial markets are currently predicting the first cut in interest rates will be in June or August 2024. As a general rule: if interest rates fall, the mortgage rate forecast would be for mortgage rates to fall too. But any cuts in interest rates depend on factors such as what happens with inflation.

As inflation comes down, mortgage rates will recede as well. Most major forecasts expect rates to go down later in 2024.

The bottom line. Today's elevated mortgage rate environment isn't preferable for homebuyers, but it doesn't mean that you should refrain from acting, either. If you discover your dream home, can afford the interest rate, find an affordable house, or have an alternative to rent, it can be worth it for you now.

Will mortgage rates ever be 3 again? ›

It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.

"CD rates will most likely drop and drop substantially in 2024," says Robert Johnson, professor of finance at Heider College of Business at Creighton University. "The biggest reason is the likelihood of Federal Reserve rate cuts later this year."

Will HELOC Rates Go Down in 2024? The Federal Reserve is expected to cut interest rates several times in 2024, which could lead to a change in HELOCs' benchmark rates and cause their interest rates to go down as well. However, there's no guarantee that rates will go down—it depends, in part, on whether inflation drops.

Key takeaways. A good credit card APR is a rate that's at or below the national average, which currently sits above 20 percent. While there are credit cards with APRs below 10 percent, they are most often found at credit unions or small local banks.

An annual percentage rate (APR) of 24% indicates that if you carry a balance on a credit card for a full year, the balance will increase by approximately 24% due to accrued interest. For instance, if you maintain a $1,000 balance throughout the year, the interest accrued would amount to around $240.00.

Because your minimum payment is based on your interest rate and current balance, when those increase, whether from additional purchases or from fees or interest, your minimum may also go up.

The bank generally cannot change your rate during the first year after the account was opened. After the first year, the bank can change your rate, but it has to give you 45 days' notice in writing before the change takes effect.

Well, most credit cards offer what is called a variable APR — that is, an annual rate of interest that varies over time as the prime rate changes. If the prime rate goes up, your credit card interest might increase by fractions of percentage points. Likewise, if the prime rate goes down, it might drop a little.

The Fed doesn't directly dictate how much interest you pay on your credit card debt. But the Fed's rate is the basis for your bank's prime rate. In combination with other factors, such as your credit score, the prime rate helps determine the Annual Percentage Rate, or APR, on your credit card.