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How the Federal Reserve's decision to raise interest rates affects you

It's the third hike since the financial crisis, and five more are planned over the next two years.
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For the third time since the financial crisis, the U.S. Federal Reserve has raised baseline interest rates in a move that is a reflection of the strengthening of the economy.

Fed chair Janet Yellen confirmed that the federal funds rate – the rates financial institutions can charge for money they lend to each other – will rise to between 0.75 and 1 percent, up from the 0.5 – 0.75 percent rate it has been at since December.

The Wall Street Journal reports that the economic outlook for the U.S. has not really changed a great deal in the past three months, leading some to speculate that the rate hike might be a tactical one to give the Fed more room to act in the event the current upheaval in Washington leads to economic trouble further down the line.

But the Fed said the rate hike comes amid solid job gains, a rise in household spending and a recent increase in inflation that points to a stable economic situation across the country.

Yellen said during a news conference that going forward there will be more "gradual" interest rate hikes to support the "moderate" growth of the economy the Fed expects over the next few years.

It's projecting two more rate increases in 2017 and three in 2018, according to NPR.

By the end of 2018, if they continue to be hiked by 0.25 percent a time, it would mean interest rates of 2.25–2.5 percent by the end of 2018.

What does this mean for me?

In the short-term, the impact of this rate rise won't be that noticeable. Where it will be felt first, though, is for holders of variable rate credit cards, who will see an immediate rise in interest on their debts, the New York Times notes.

Those on short-term, fixed-rate loans won't be affected, but anyone on a variable rate could end up paying more.

Although mortgage rates are more directly impacted by the price of bonds than by interest rates, the cost of 30-year home loans have been increasing following the December rate hike and in anticipation of Wednesday's increase, with CNBC reporting they hit their highest levels since 2014 last week.

Considering further planned hikes could increase interest rates by 1.5 percent by the end of 2018, the cost of mortgage borrowing is likely to be considerably more expensive in the coming years compared to a year or two ago.

CNBC says that is possibly behind why the number of mortgage applications made last week was 6 percent higher than last year as buyers look to lock in cheap rates.

On the plus side, higher interest rates means should you be seeing some better returns on your savings being offered by banks. Although banks are notoriously slow at passing on interest rate hikes to savers (compared to borrowers), there's a good chance you'll be getting a better rate later on this year than you are currently.

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