Americans will earn more money on their savings than they'll pay through higher interest rates on credit cards and home lines of credit after the Federal Reserve’s latest rate hike, according to an analysis from ValuePenguin. In all, we estimate consumers will be ahead by more than $800 million this year.
If that conclusion surprises, it’s probably because when the central bank raises the benchmark Federal Funds Rate—as it did on June 14 by a quarter-point—attention tends to focus on interest-rate increases on debt, including credit-card balances. Yet our analysis reveals that those debt charges will be more than offset by the additional interest consumers will earn on their savings accounts after the hike.
Overall, U.S. consumers will pay $1.68 billion more annually in interest payments on their credit cards and home-equity lines of credit, or HELOCs, because of the latest rate increase. But we estimate they'll also earn $2.49 billion in interest on savings and money market accounts. That will result in a net gain of $805.9 million, or $6.53 per household.
While the aggregate figures are impressive, the advantage for each household is admittedly modest. American households will pay $10.22 more in interest on their credit card debt this year, plus $3.43 more on HELOC interest (if they have one). They will earn $20.18 more in interest on money in their savings and money market accounts.
The gains are not evenly distributed across the country. States’ gains vary widely, due to differing balances of debt and savings. The average Hawaiian household will get $14.21 ($6.9 million total) this year when interest on their debt is subtracted from interest earned on savings accounts. That’s more than double the national average. Households in New Jersey fare second-best, pocketing $11.66 ($38.4 million in total) this year. Those are the only two states to post double-digit, per-household net gains.
By contrast, Oklahomans get the least out of the Fed rate hike. Households in the state gain only $2.77 each ($1.5 million total) this year after deducting debt interest payments from earned interest. Other states with the least gains per household include Vermont ($3.29 per household, Maine ($3.30 per household) and Arizona ($3.40 per household).
We focused on so-called revolving debt, from credit cards and home-equity lines of credit, because rates on those debts are affected almost immediately by the Fed Funds Rate. We excluded other types of debt, including installment loans such as mortgages and auto loans, because the Fed’s effect on those rates tends to be less immediate or direct. (For more detail, see our Methodology.)