En español | Federal Reserve policymakers raised a benchmark interest rate in December and signaled more hikes were on the way. Now the headlines say they won't raise rates, or might drop them again or maybe boost them later. Say wha?!
"The Fed doesn't know yet what it's going to do with interest rates," says Mark Hamrick, senior economic analyst with Bankrate.com.
So don't fret over what will or won't happen. Use this time to check your interest rates and make sure you're getting the best deals.
Search card comparison websites to find the best terms. If and when the Fed raises rates—or lowers them—banks will pass that on to consumers with variable-rate cards within one or two billing cycles.
Action: Take advantage of promotional offers for a low or zero-percent interest rate if you transfer your balance to a new card, says Greg McBride, chief financial analyst with Bankrate.com. And limit the interest you'll owe if rates later rise by paying down credit cards now.
Rates on mortgages don't move in lockstep with Fed policy and, in fact, dipped following last year's rate hike, says Keith Gumbinger, vice president at mortgage research firm HSH.com. Consumers who are good credit risks were able last month to secure a rate of 3.75 percent—or better—on a 30-year-fixed loan, Gumbinger says.
Action: If you're paying 1 percentage point more on your mortgage than what banks are offering, run the numbers to see if refinancing is worthwhile, he says. Consider locking in a rate with a lender soon if you're close to buying a house, because the long-term forecast is for higher rates. "Rates rise much faster than they fall," he says.
Home equity lines of credit
The rate on this revolving line of credit is typically a combination of the prime rate—what banks charge their best customers—plus an interest margin that can run from zero to 3 percent depending on the lender, Gumbinger says.
Action: Make sure you check that second number when shopping for lines of credit to get the best deal. Those who already have a credit line can expect to see their rate go up in one or two statements after a Fed rate increase, McBride says. To avoid a bigger monthly payment as your rate rises, see if your lender will give you a fixed rate on outstanding balances.
The key factor for auto rates is your credit history. "Consumers with excellent credit scores of 740 or higher receive the best rates for financial products," says Bethy Hardeman, chief consumer advocate at Credit Karma.
Action: Check your score and get busy improving it to earn better terms next time you buy.
Savings and CDs
Whatever happens with rates in the near term, the days of earning a pittance on your savings aren't over. It may take one or two more Fed rate hikes before banks inch rates up.
See also: Stash your cash in long-term CDs
Action: Look for banks and credit unions—some of which operate only online—that offer the most competitive rates. "If they are among the most competitive now, they are very likely to remain that way," McBride says.
Bonds and bond funds
If you own an individual bond and hold it to maturity, nothing changes for you when rates rise or fall. But if you want to sell that bond or invest in a bond fund that buys and sells its holdings regularly, rising rates can have a negative impact. As rates rise, the price of older bonds offering a lower yield generally falls. When rates fall, bond prices rise.
Action: Don't let the threat of rising rates make you shun bonds if you want fixed-income investments, says Sumit Desai, senior fixed-income analyst with Morningstar. Short-term bond funds are less sensitive to price swings than long-term bond funds, but the yield is lower. Look at the type of bonds in a bond fund—say, safe government bonds or riskier corporate bonds—and make sure you're comfortable with that.