WASHINGTON–With the Federal Reserve Open Market Committee in meetings this week at which a rate hike will be considered, a new analysis finds the six rate increases by the Fed since December of 2015 have cost credit card users an extra $8.23-billion in interest to date.
The same analysis also offers findings on what similar increases mean to mortgages, auto loans and deposit accounts.
“That (credit card) figure will swell by at least $1.6 billion this year if the Fed raises its target rate on June 13, as expected,” said WalletHub in its analysis. “And even more rate hikes are projected for the final two quarters of 2018.”
WalletHub said the rising cost of debt puts a lot of pressure on consumers, who now owe more than $1 trillion to credit card companies for the first time ever.
“For example, it will take the average person in Magnolia, Texas, nearly 13 years to pay off his or her balance,” said Wallethub.
Among the findings in the Wallethub research:
Credit Cards
- The vast majority of credit card rates are variable, tied to the Prime Rate. “As a result, we expect to see credit card rates rise the same amount as the Fed’s target.”
- Another 25-basis point increase will cost credit card users roughly $1.6 billion in extra finance charges during 2018.
Mortgages
If recent rate hikes are any indication, the market won’t see much of a change following a June rate hike, as the mortgage markets have already accounted for the move, said WalletHub.
- “However, that is not to say that Fed rate hikes don’t make mortgages more expensive for new borrowers. WalletHub’s analysts estimate that this rate hike has increased the cost of new mortgages by seven basis points, the company said.
- The Fed has cost the average homebuyer ($230,984 loan ) roughly $42,000 since the start of 2015, “if you assume the 88-basis point rise in the average APR on a 30-year fixed-rate mortgage from January 2015 to March 2018 is due solely to the six Fed rate hikes that have occurred since then, as well as the upcoming ones,” WalletHub said.
Auto Loans
- WalletHub said it expects the average APR on a 48-month new car loan to rise by around 15 basis points in the month following the Fed’s next 25-basis point rate hike.
- The average APR on a 48-month new car loan rose from 4.00% in November 2015 to 4.74% in February 2018 (the most recent data available). That’s a 74-basis point increase in a period characterized by 150 basis points in Fed rate hikes and record auto sales.
Deposit Accounts:
- WalletHub said it expects little, if any, change in the APYs available from deposit accounts following the Fed’s next rate hike. “Yields on some types of accounts may even fall temporarily.”
- Online savings account yields have increased by just 39 basis points on average since December 2015, despite 150-basis points in Fed hikes since then (not including June 2018 ). “Banks seem quick to pass higher rates to consumers on loans, but are not sharing the love on the deposit front,” WalletHub said.
The full study can be found here.