Higher rates? Savers aren’t seeing them

WASHINGTON — The borrower’s pain is not necessarily the saver’s gain.

The cost of mortgages, home equity lines and credit card debt has gone up with each bump in interest rates by the Federal Reserve. Savers, for the most part, have not seen comparable increases in their returns.

One more jump in rates was expected at the conclusion of the Fed’s two-day meeting today. Although the Fed acts on the federal funds rate, which is the overnight rate that banks charge each other, each increase trickles down to the consumer.

The funds rate influences a variety of interest rates, such as those on adjustable-rate and other mortgages. It also affect 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 cards, home equity and other loans — to 8.25 percent.

“That will hit people in the pocketbook,” said Anthony Sabino, professor of business law and economics at St. John’s University.

The average rate nationally on a home-equity line of credit has gone from 4.77 percent to 8.09 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 from 1.51 percent to 3.80 percent over the same period. The average rate on a savings account, meanwhile, has advanced only from 0.42 percent two years ago to 0.54 percent today.

“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 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: pushing up rates enough to thwart inflation, but not so high as to hurt the economy.

Bernanke has said that rising inflation is not welcome and he has made clear that snuffing it out is the Fed’s No. 1 job now.

The anticipated Fed action today would lift the federal funds rate by one-quarter of 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.