NEW YORK — Nobody knows when exactly, but the day will eventually come when the Federal Reserve nudges its benchmark lending rate from next to zero to something slightly higher.

When that happens, it will put upward pressure on borrowing rates throughout the economy – for credit cards, mortgages, car loans and student loans. But that doesn’t mean the era of incredibly low interest rates will soon be over.

The Fed’s chair, Janet Yellen, has taken pains to be cautious. On Wednesday, the central bank gave more signals that it will move slowly toward its first interest-rate increase in nearly a decade. By the end of the year, Fed officials expect the benchmark rate will reach 0.625 percent.

It was a different world the last time the Fed began a series of increases. Rates were already much higher than today. In June 2004, the Fed lifted its benchmark rate from 1.0 percent to 1.25 percent. By the time the Fed was finished in 2006, the rate had reached 5.25 percent.

Nobody expects anything like that now. With the economy still growing slowly and inflation minuscule, rates will likely hover near historic lows. The Fed doesn’t want to ratchet up the monthly payments on your credit card. It’s in no rush.

“You’re going to see rates remain low for quite some time,” said Patrick Maldari, senior fixed-income specialist at Aberdeen Asset Management.


Many expect mortgage rates to creep higher this year. The average 30-year mortgage carries a rate of 3.7 percent, according to Freddie Mac. That’s close to a record low of 3.31 percent and compares with an average rate of 5.9 percent a decade ago.

Greg McBride, chief financial analyst at, thinks homeowners ought to lock in mortgage rates as long as they remain below 4 percent. If you haven’t refinanced already, in other words, consider it soon.

Home loans won’t hinge on the Fed’s next move, though. Mortgage rates are closely tied to long-term interest rates, specifically the 10-year Treasury note. These rates are tethered to the Fed’s benchmark, yet have plenty of wiggle room.

The 10-year yield has actually been falling over the past year.


It’s been a tough time for people socking away money in savings. On average, savings accounts pay an annual percentage yield of 0.09 percent, according to A one-year certificate of deposit pays a paltry 0.28 percent. For every $1,000 saved, in other words, the bank will give you $2.80. Ka-ching!

“Savings rates are nearly at zero and, unfortunately, I think depositors aren’t going to see much of a difference,” said Casey Bond, managing editor at GoBankingRates.

The Fed has signaled that it will raise rates slowly and carefully. A series of hikes large enough to lift yields on savings accounts, however, could put the economic recovery at risk by curbing lending and business spending. “Anything that would give savers a real boost would be too disruptive,” Bond said.


Credit card rates could start to inch up once the Fed raises its benchmark federal funds rate – especially the low teaser rates that credit card issuers use to entice people to sign up or shift credit card balances.

McBride advises that borrowers “grab those zero-interest balance transfers and introductory credit card rates. As the Fed moves away from zero interest rates later this year, credit card issuers will too. Chip away at your variable-rate debt now before interest rates start to climb.”

Credit card rates remain high – variable credit card rates average nearly 15.8 percent, according to But they could head higher if the fed funds rate goes up.


To judge by the stock market’s daily swings, investors fear the Fed’s first rate increase. Speculation that the Fed is preparing to move usually knocks stocks down. But the market has actually performed well in the face of rising interest rates. A recent report from UBS looked at the Fed’s initial rate hikes going back to 1954. It showed that the Standard & Poor’s 500 index rallied an average of 7.6 percent in the next six months.

Many investors are confident that as long as the Fed moves gradually, the stock market should be fine. That’s what happened in the last round of Fed hikes, in 2004. The S&P 500 finished the year with a 9 percent gain.

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