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The cost of mortgages, home-equity lines and credit-card debt has gone up with each bump in interest rates by the Federal Reserve. However, most savers have not seen comparable increases in their returns.
Another bump in rates is expected today at the end of the Fed's two-day meeting. Although the Fed acts on the federal funds rate -- the overnight loan rate that banks charge each other -- each increase trickles down to the consumer.
The federal funds rate influences a variety of interest rates, such as those on adjustable-rate and other mortgages. It also affects rates on business loans.
In response to the Fed's expected move, commercial banks are poised to boost their prime lending rate -- used for certain credit-card, home-equity and other loans -- to 8.25 percent.
"That will hit people in the pocketbook," said Anthony Sabino, a professor of business law and economics at St. John's University in New York.
The average rate nationally on a home-equity line of credit has risen to 8.09 percent from 4.77 percent in the two years since the Fed began its rate-raising campaign, according to figures compiled by Bankrate.com
The average rate for a one-year certificate of deposit has climbed to 3.80 percent from 1.51 percent in the same period. Meanwhile, the average rate on a savings account has advanced only to 0.54 percent today from 0.42 percent two years ago.
"That's why it is imperative for investors to shop around and get the best returns on their savings and CDs, because better returns are available if you are willing to look," said Greg McBride, senior financial analyst at Bankrate.com.
It is possible the central bank might nudge rates still higher at its next meeting, in August, depending on how inflation and economic activity unfold.
For Fed Chairman Ben Bernanke and his colleagues, the balancing act is this: They must push up rates enough to thwart inflation, but not so high as to dampen the economy.
Bernanke has said that rising inflation is unwelcome, and he has made clear that snuffing it out is now the Fed's No. 1 job.
The anticipated Fed action today would lift the federal funds rate by one-quarter of a percentage point to 5.25 percent. That would be the 17th such increase since the Fed began to tighten credit in June 2004.
This step would leave both the funds rate and the prime rate at their highest points in more than five years.
Before the Fed's series of increases, the prime rate stood at 4 percent and the funds rate was at 1 percent. It was a boon for borrowers, a bane for savers.
Those extraordinarily low rates were needed to help brace the economy after the stock market bubble burst, the 2001 recession set in, terrorists struck the United States and accounting scandals rocked Wall Street.
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