The Federal Reserve’s recent interest rate hike is proving to be a costly one for credit card borrowers. (See also: Fed Increases Interest Rates At March Meeting).
At least 17 banks have already hiked their prime rates (or the rates at which banks lend money to customers) by 0.25 basis points to 4%. The prime rate is the base rate for lending; this means that the actual rate at which banks will lend money to credit card borrowers may be even higher. The prime rate increase is expected to have limited effect on auto and education loans. (See also: What Credit Cards Offer The Lowest Loans?)
Interestingly, banks have hiked their prime rates even before passing over a savings rate increase. The list of banks which have increased their prime rates includes big ones, such as Citigroup Inc.’s (CITI) Citibank and Bank of America Corp. (BOA), and mid-sized banks, such as Webster Bank.
The Federal Reserve recently approved an interest rate hike to 1% earlier this week. The government agency has predicted another two rate increases later this year as well as three more next year. The Fed’s raising of interest rates in December 2015 had provided a spur for banks to raise their Prime rates to 3.5% after seven years of maintaining it at 3.25% in the aftermath of the financial recession. A hike in the federal funds rate (or the rate at which the federal reserve loans currency to banks) translates to less spending and more savings. However, given that current economic data is mixed (consumer spending is up and inflation rose only marginally) and the fact that the interest rate hike is minimal, it is not expected to substantially change the economy’s contours. The Annual Percentage Rate (APR) fell in the aftermath of the financial crisis but have since recovered. (See also: The Impact Of A Fed Interest Rate Hike).