What is the correlation between the Fed's interest rate hike and banks raising their own rates?
I am curious as to how my savings will be affected by the Fed's decision to raise interest rates. Will banks automatically raise their own rates, thus increasing my savings? Or do the two not technically go hand in hand, do banks adjust their rates independently at their own discretion?
The modest .25% raise in interest rates will have more of an impact on borrowers than it will savers. Those with adjustable rate mortgages or credit card debt are usually most affected. Market forces really dictate savings/money market and CD rates more than interest rate changes. Depending on where you look, most money markets are hovering around 1% with longer term CD’s around 2%, both of which have been in that range for quite a while now.
Unfortunately, the rates banks pay on savings accounts and CDs are not based on the Fed's actions. Those rates are determined by competitive factors, like how important it is for the banks to bring in more deposits. So it may take a long time for the higher interest rates to trickle to savings accounts.
On the debt side, on the other hand, you should see increases right away: credit cards, mortgage rates (although they steadily started going up back in November), home equity lines rates, as well as new college student loans.
Sorry for not having better news for you.