Posted on: Wednesday, December 15, 2004

Impact of Fed actions on consumers varies

By Andrea Coombes
CBS MarketWatch

SAN FRANCISCO — As the Fed lumbers on with its measured rate increases, changes to rates on various consumer products are benefiting, and pinching, Americans' pocketbooks in surprising ways.

Since the first Fed rate hike on June 30 through its fifth hike yesterday, with the federal funds rate up to 2.25 percent from June's 1 percent, Americans stashing cash in savings accounts have seen those interest rates go nowhere, and five-year CD yields are also essentially unchanged in that time, but savers invested in money-market mutual funds and short-term CDs are watching their yields rise.

For borrowers, rates on home equity lines of credit and some credit cards are ticking upward as expected, but the cost of home equity loans is trending lower along with other fixed-rate mortgages, and fixed-rate credit cards are unchanged.

"The biggest impact of the Fed moves in terms of ... consumer rates has been on variable-rate credit cards, home equity lines of credit and money market (funds) and shorter-term certificates of deposit," said Greg McBride, senior financial analyst at Bankrate.com.

Auto loan rates, which historically moved in concert with the prime rate (which adjusts with the federal funds rate), are holding steady, with interest-rate changes on that product looking more like long-term fixed-rate mortgages.

Auto loan rates "are showing less and less connection to the prime rate and a closer relationship to yields on Treasury securities," McBride said.

Home equity lines of credit in early December cost an average of 5.4 percent for a $30,000 loan, up from 4.71 percent in July, according to Bankrate.com, which regularly surveys the 10 largest banks in each of the 10 largest markets.

But home equity loans now cost an average of 6.89 percent, down from 6.99 percent in July.

Meanwhile, homebuyers have enjoyed continued low rates, with the average cost on a 30-year fixed mortgage down to about 5.72 percent today, versus 6.3 percent in June, according to Bankrate.

The record low was 5.28 percent in June 2003, "but the rates are still very low and we've seen very little movement since the beginning of September," McBride said.

Buyers opting for adjustable-rate mortgages have seen those rates bounce around. One-year ARMs are at 4.26 percent currently, down from 4.36 percent in June. But in March, they were 3.42 percent, on average.

Meanwhile, rates on variable-rate credit cards jumped to 14.3 percent on average, from 13.5 percent earlier this year, according to Bankrate.

But fixed-rate credit cards have not changed, despite the fact that issuers can change those rates with 15 days' notice to cardholders.

"That's somewhat surprising," McBride said.

These cards' rates "tend to change in bursts in response to a number of interest rate moves. We haven't seen that first burst of repricing on fixed cards yet," he said. "It is inevitable."

Statement savings account rates are 0.41 percent now, down from 0.42 percent in April, according to Bankrate. The numbers are almost identical for passbook savings: 0.42 percent now, from 0.43 percent.