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How does an interest rate change affect you?

This feature was produced in collaboration between Vox Creative and Chase. Vox Media editorial staff was not involved in the creation or production of this content.

By Robert Brian Levine

The money required to repay any debt depends on two basic things: how much you borrowed, and at what interest rate. And the interest rate you're paying depends in large part on decisions of the U.S. Federal Reserve (and, of course, your credit profile). The Fed sets the rate banks charge for loaning one another money overnight, and that, in turn, determines the interest rates on everything from how much you earn on your savings accounts to how much you pay on your credit cards and home mortgages.

On December 16, 2015 the Fed raised its key interest rate by .25 percent — the first increase in nearly a decade. Essentially, the Fed tries to regulate the economy, to minimize inflation and maximize employment, by raising or decreasing interest rates. Lowering its rate spurs growth, and employment, by encouraging companies and people to borrow money. Raising the rate makes borrowing more expensive, but it helps prevent inflation, which erodes the value of the dollar. Since 2006, rates have been near historic lows — and most economists believe they'll remain that way.

The Fed's December decision will cause other interest rates to rise — meaning that banks will pay higher interest in savings accounts, but also that mortgages and credit card interest rates will rise. This, and future Fed decisions, will affect the interest rate charged on most new loans. Other loans, like adjustable rate mortgages, have interest rates that change in response to the Fed. Click the options below to see how the Fed's future decisions could affect you.

Robert Brian Levine is a writer and editor based in New York City.

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This feature was produced in collaboration between Vox Creative and Chase. Vox Media editorial staff was not involved in the creation or production of this content.


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