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Another 0.25% Rate Increase and How It Will Affect You

Contributed by mm | August 11, 2004 9:47 AM PST

As many people expected, Fed raised short-term interest rate target again by 25 basis points to 1.50%, and this should push the prime rate to 4.50%, which will subsequently affect many of us who have a variable-rate component in our financial life.

Who will be the winners and who will be the losers in this rising rate environment? Bankrate concludes:

Adjustable-rate mortgage holder or shopper: Loser
Homeowner or home shopper: Neither a winner nor a loser
Certificates of deposit investor: Winner
Home equity line of credit borrower: Loser
Home equity loan borrower: Neither winner nor loser
Car shopper: Loser
Credit card debtor: Loser

Speaking of myself, I am only four month into my 5/1 adjustable-rate mortgage (ARM), so I will not feel the heat anytime soon. I am not worried about the recent rate increase -- after all, interest rate five years from now may only have loose correlation with today's rate. On the other hand, I hope we will soon see more competition in the saving rates, so that I can squeeze a bit more profit from my 0% APR balance-transfer games. (I don't think this is wishful thinking: ING Direct, a provider of high-yield saving accounts, recently raised its rate by 10 basis points to 2.20% APY, and marginally beats VirtualBank, which is still my favorite place to park money, for now.)

By the way, if you keep a revolving balance in your credit cards, you might want to check out CardWeb's nicelist of the detailed processes major credit card issuers follow to raise rates for variable-rate cards. The new rate hike should affect you in 60 days, if not sooner.

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