The Federal Reserve just hiked interest rates – here's what it means

Ir you're looking at student loans, thinking about buying a house, or have a credit card, this is good to know.
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The Federal Reserve announced Wednesday it is raising interest rates for only the second time in the past 10 years.

The Fed confirmed it will increase rates by 0.25 percent for the second December in a row, thanks to a strengthening labor market, growing economic activity and declining unemployment.

It brings the federal funds rate – which sets the amount financial institutions can charge for money they lend to each other – up to 0.5-0.75 percent. It had been 0.25-0.5 percent (which it was increased to last year).

As well as Wednesday's hike, the Fed also signaled there could be as many as three more rate hikes in 2017, '18 and '19 on the back of potential infrastructure investments under the incoming Trump administration.

That said, it cautioned that economic conditions will mean only small increases in the rate as the Fed tries to achieve its main objectives: maximum employment and 2 percent inflation.

What does this mean for you?

Rates have been kept low to allow cheap money to flood the country in the wake of the financial crisis. That encourages consumers to borrow money, which in turn stimulates the economy.

Because the economy is in a stronger position now, those rates have been raised. Meaning the cost of borrowing could get higher.

The impact on mortgages

For mortgages, CNN Money reports that since the Fed sets short-term interest rates, the impact on long-term loans like mortgage isn't as pronounced. So there's no guarantee that mortgages are about to get more expensive.

But it's not to say they're not affected, and further rises in the federal funds rate next year and beyond could make them more expensive for anyone taking out new home loans, or remortgaging.

The current price of 10-year bonds has more of an impact on mortgages since they're closely linked, CNN Money notes.

The yields on these bonds have risen 0.7 percent since last month's election, having a knock-on effect on 30-year mortgage rates – since October, they've risen from 3.47 percent to (a still pretty cheap) 4.1 percent.

The impact on loans/credit cards

Although a 0.25 percent hike won't have a huge impact on short-term loans, the possibility of three more rate rises could have more expensive implications for borrowers.

Fixed-rate borrowers won't be affected. But Forbes last year had some advice for anyone with variable-rate student loans or mortgages, as well as credit card holders. Borrowing for those people could get more expensive now.

USA Today reports the extra expense won't be crippling though. It says a 0.25 percent raise on a 4.25 percent auto loan for a $25,000 car would increase payments by just $3 a month.

The most immediate impact, the newspaper says, will be felt among variable-rate credit card holders, who are likely to see the cost of borrowing increased immediately (so pay off all, or as much as of your bill as possible before interest starts getting charged).

The impact on savers

On the flip side, when borrowing costs rises, so do the rates offered to people who want to save money. That's because banks look to encourage more deposits, which they can then use to fund their lending.

A 0.25 percent rise is negligible, and it's not guaranteed that your bank will increase savings rates accordingly. But given the Fed has raised them by half a percent in the past 12 months, chances are you'll be getting better interest on your savings than in mid-2015.

USA Today suggests that with Americans being cautious and already having built up a substantial amount of savings the past few years, there will be less onus on banks right now to increase savings rates – suggesting there could be a 6-month lag before things improve.

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