The Federal Reserve is widely expected to raise interest rates on Wednesday, a move that would mark its first hike in more than three years.
Federal funds futures indicate a 90% chance that Fed Chairman Kevin Warsh and the Federal Open Market Committee will announce a quarter-point interest rate increase.
The stock market’s reaction to the Fed’s announcement is likely to draw the most headlines, and John Shugar, a partner at Goldman Sachs, leans toward an optimistic scenario.
“You basically have a market where all of the heavy lifting has actually been done on the earnings side,” Shugar said in an analysis. He points to “terrific opportunities” in various AI consumer sectors, though “over the next few weeks, we may have a lot more speed bumps.”
However, within one year, he says he expects the S&P 500 index to climb above 8,000.
What will a higher rate environment mean for your money? The federal funds rate influences not only the stock market, but also savings rates, interest charges, and, to a lesser degree, mortgage rates. Here’s how to prepare for the impact on your deposits, credit, and debt.
How a Fed rate hike affects checking and savings accounts
A series of Fed rate hikes will likely slowly lift deposit earnings. However, deposit accounts are mostly for convenience, not substantial returns. So far in 2026, the gains have been meager.
Checking accounts
Your checking account churns cash flow to pay bills. The liquidity limits your earning power.
The national average interest rate on checking accounts has barely budged this year, remaining at 0.07%. A Fed short-term interest rate increase, whenever it comes, may nudge earnings incrementally higher.
Savings accounts
Interest rates on savings accounts are only marginally better, clinging to 0.38%. But savings accounts are for near-term money.
High-yield savings accounts have been more effective at paying interest. Rates are mostly in the 3% range, with an occasional 4% yield available.
This is one category where rate shopping and subsequent Fed rate increases really pay off.
Money market accounts
If you have $10,000 or more that you want to keep on the sidelines but easy to tap when you need it, money market accounts have been convenient — but low-paying, with a national average payout of only 0.63%.
A high-yield money market account is a better option, where you may still find a rate just under 4%, but mostly in the mid-3% range.
What a rate hike does to CDs
CD rates have begun inching higher. The national average on a 12-month CD is 1.71%, but you can find better deals if you’re willing to shop around — and move your money to the best offer.
Your minimum deposit and term will affect your rate. Fed rate hikes may ultimately sweeten CD rates.
What a rate hike will mean for mortgages and personal loans
Home mortgages
And then there are mortgage rates, often the largest borrowing expense consumers face. Fed interest rate increases don’t usually affect mortgage rates — the bond market often prices in hikes before monetary policy moves.
At the end of February and into early March, mortgage rates were hitting three-year lows. Then the war in the Middle East began, and rather than falling further, home loan rates reversed course and edged higher. Home loan rates have recently neared or topped 7% (depending on the rate reporting source), mirroring the higher yields of the 10-year Treasury note.
Housing industry analysts at the Mortgage Bankers Association and Fannie Mae predict that mortgage rates will remain above 6.5% through 2027.
Personal loans
Personal loan interest rates have risen slightly to an average of 11.86%. Advertised personal loan rates are now generally in the 7%-8% range.
What happens to credit cards when the Fed raises rates
Credit card interest impacts everyone — except those who pay off their balance each month. Credit card rates have risen from around 16% in 2021 to an average of over 22% today.
Michele Raneri, vice president and head of U.S. research at TransUnion, expects consumers to see “minimally higher” borrowing costs as variable-rate credit products reflect the Fed’s interest rate hike.
“A consumer carrying the average Q2 2026 credit card balance of $6,610 at a 22% APR could see an increase of $1.38 in minimum monthly payments as those higher rates are passed on,” Raneri said in a statement. “While the near-term impact on minimum monthly credit card payments may be relatively small, higher borrowing costs can add up over time, particularly for consumers carrying larger balances or making only minimum payments.
Reducing revolving debt will limit the impact of rising interest rates, she added.
tax assistant tip: The best way to earn a lower credit card interest rate right away is to ask. If you make regular payments and have seen your credit score improving, it’s a good time to call your credit card provider and ask for a lower interest rate.
How the Fed’s interest rate policy impacts your investments
“There’s an old Wall Street adage that says, ‘Don’t fight the Fed,'” Kevin Gordon, head of macro research and strategy at Schwab, said in an analysis. “The idea behind it was that there’s often a lot of turbulence associated with Fed rate-hiking cycles.”
He noted that history shows an average maximum loss of more than 10% for the S&P 500 sometime within 12 months after the start of a higher-interest-rate cycle.
“Broadly, though, we would say that the economic backdrop is still relatively favorable for the Fed to be hiking. So even if it is a hiking cycle where they do hike more than once, we think that the economy can probably hold up,” he added.
Stock prices often react to the Fed’s rate actions, but they are only one of many factors affecting the investing climate and stock prices. AI investments and oil-price-fueled inflation seem to be the most motivating factors for equity markets these days.
If you want to manage your investments for the current environment, monitor broader economic and corporate profit trends, as well as interest rates. If you prefer to stay conservative, fill your portfolio with high-quality stocks that have proven themselves in all economic cycles.
The Fed uses interest rate hikes as a tool to cool down inflation. Driven by higher energy prices and broader inflationary pressures, central bank officials are raising the benchmark rate to slow spending and prevent the economy from overheating.
Variable-rate credit cards usually reflect Fed rate hikes within 1 to 2 billing cycles. Since most credit card annual percentage rates (APRs) are directly tied to the prime rate, a 0.25% increase from the Fed will directly raise your APR by a similar margin, slightly increasing your minimum monthly payment.
High-yield savings accounts (HYSAs) and money market accounts generally adjust upward following a rate hike, though not instantly. Banks usually lift yields over a few weeks to remain competitive, making rate-shopping worthwhile to secure the highest yields (often reaching 4% or higher).
Not directly. Fixed-rate home mortgages track the 10-year Treasury note yield rather than the short-term federal funds rate. Mortgage markets often price in expected Fed moves ahead of time, meaning home loan rates may remain elevated (above 6.5%–7%) based on broader inflation and economic forecasts rather than the single day of the Fed announcement.
Equities often experience short-term volatility and minor corrections as borrowing costs rise for businesses. Historically, the S&P 500 can see pullbacks within 12 months of a cycle start, but strong corporate earnings, robust fundamentals, and emerging sectors (like consumer tech and AI) can offset rate pressures over a longer investment horizon.
Manoj Sharma is a Senior Writer on the banking team at Tax Assistant. He provides information on budgeting, bank accounts, the banking industry, and other related topics. Using original data and methodologies, he helps you identify the best financial institutions, accounts, and products tailored to your needs. Manoj holds a degree in Journalism and Political Science from Syracuse University. All articles are strictly reviewed and fact-checked by our panel of expert Chartered Accountants, including CA Devendra Saini, CA Nikhil Khunteta, and CA Ankit Goyal
