- [Ellie] The Federal Reserve raised, in June, its key interest rate by 1/4 of a percentage point.
- Today, the Federal Open Market committee decided to raise the target range for the federal funds rate by 1/4 percentage point.
- Now, 1/4 of 1% might not seem like much, but any time interest rates rise, it can have a significant effect on the economy and on your finances.
When the Fed announces a federal funds rate hike, that means that it increases how much banks will be charged to borrow money from other banks.
The rate increase eventually trickles down to consumers, and it can affect your credit card debt, your savings account, and even your mortgage.
Credit card interest rates are variable and they're tied to what is known as the Prime Rate.
The Prime Rate is an index that's just a few percentage points above the federal fund rate.
So, when the Fed raises the Fed fund rate, the prime rate also goes up, and up goes your credit card interest rate as well.
The kicker?
Banks don't need your consent to make that change.
