Javascript is not enabled.

Javascript must be enabled to use this site. Please enable Javascript in your browser and try again.

Skip to content
Content starts here
Leaving Website

You are now leaving and going to a website that is not operated by AARP. A different privacy policy and terms of service will apply.

What Fed Rate Hikes Mean for Your Money

The sharp rise in rates since 2022 is good for savers, bad for borrowers

spinner image The Federal Reserve building in Washington, D.C., looking up at the eagle statue on top.
Getty Images

The Federal Reserve paused its series of interest rate hikes on Sept. 20, leaving its target for the key federal funds rate, which influences everything from car loans to savings accounts,  at between 5.25 percent and 5.5 percent.

The Fed has gradually nudged rates from near zero in March 2020 to north of 5 percent today, and that has had a big impact on your money. For savers, higher rates are great news: You can now earn 5 percent or more on safe, reliable investments from your bank or brokerage. On the other side of the household ledger, however, higher rates mean bigger loan payments on big-ticket items like automobiles and houses. 

Why is the Fed raising rates? Put simply, to slow the economy and reduce inflation. When it’s more expensive to borrow money, businesses and consumers alike are less likely to spend as much of it. That, in turn, slows growth and demand. Here’s more on how the rate hikes can affect you and your money.

spinner image Image Alt Attribute

AARP Membership

Join AARP for $12 for your first year when you sign up for Automatic Renewal. Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP The Magazine

Join Now

Happy days for savers

Although the Fed’s rate hikes have cooled the economy, they have been a gift to savers. After the Fed dropped rates to near zero at the onset of the pandemic, the most savers could get from a bank certificate of deposit (CD) was a warm handshake from a teller. ​

No longer. Some banks are offering as much as 5.6 percent on a one-year CD, according to That’s $560 on a $10,000 deposit. Similarly, ultrasafe, short-term Treasury securities are also offering yields above 5.5 percent. A few online banks are paying 5 percent interest on savings accounts with no minimum balance.

“Online banks, community banks and credit unions have been raising rates to very competitive levels,” McBride says. “Put your money where it will be welcomed with open arms and higher yields.”

Another benefit of higher rates: Inflation has fallen from an annual rate of 9.1 percent in June 2022 to 3.7 percent in August 2023. Although that’s higher than the Fed would like — it’s aiming for 2 percent inflation — it means that savers can get a positive return from their investments after inflation. When inflation was soaring, the combination of low interest rates and rising prices meant that savers effectively lost money after inflation.

Tougher times for borrowers

For those shopping for a new home, rising rates have been as welcome as a flooded basement. A 30-year fixed-rate mortgage is now averaging 7.18 percent, up from a low of less than 3 percent in 2020 and 2021. 

The monthly principal and interest payment on a 30-year, $300,000 mortgage loan at 7.18 percent is $2,032, up from $1,265 at 3 percent. The higher payment has chased many buyers out of the market.

Existing-home sales fell 19 percent in July from a year earlier, as mortgage rates rose. People with low-rate mortgages from the last decade are reluctant to sell and take out a new, higher-rate mortgage.

Car loan rates have jumped, too. The interest rate on a five-year car loan now averages 7.4 percent, according to Statista. 

Credit-card interest rates have risen as well. The average interest rate for a new card is 24.45 percent, according to Lending Tree. People with bad credit could get an initial rate of 27.86 percent, while those with very good credit could get 21.03 percent.

Flowers & Gifts

Coupons for Local Stores

Save on clothing, gifts, beauty and other everyday shopping needs

See more Flowers & Gifts offers >

How do higher rates fight inflation?

Inflation is caused, in part, by an economy that’s running hot. It’s also caused by supply chain problems, as many of us discovered during the COVID-19 pandemic. When there’s more demand for goods than industry can produce, prices rise. 

Higher interest rates slow the economy and tamp down demand. Companies have to pay higher interest rates on their loans, for example, which reduces earnings and could prompt layoffs to keep the company in the black. Since March 2022, the Fed has raised interest rates 11 times.

Higher rates also slow the housing market, an important driver of the economy. For example, when you buy a first home, you often have to make trips to the hardware store (among other stores) and that, in turn, stimulates the economy. When the housing market slows, so do sales at hardware stores.

“There is debate about whether the Fed is done raising interest rates or not, but one thing is for sure — rates are unlikely to come down in any meaningful way for quite some time,” McBride says. “Borrowers should be aggressively paying down high-cost credit card debt and variable rate home equity lines of credit. Boosting emergency savings is rewarded with returns exceeding 5 percent if you’re putting the money in the right place.”

Discover AARP Members Only Access

Join AARP to Continue

Already a Member?