NEW YORK (CNN/Money) -
The Federal Reserve is set to meet Tuesday and most experts agree another quarter point rate hike is in the cards.
The anticipated increase (see more on what's expected) would bring the federal funds rate to 2.25 percent. Many economists see the rate hike as a way for the Federal Reserve to keep inflation, or rising prices, in check. That doesn't mean, however, consumers won't feel a pinch.
Here are five tips that will help minimize the impact of rising rates on your wallet.
1. Why it matters.
The Fed funds rate is what banks charge one another for overnight loans to cover their reserves. When the Fed raises rates, banks then pass that increase on to consumers.
The Fed funds rate as the leader of the pack; when it moves up or down, other rates follow.
One Fed funds rate follower is the prime rate, currently at 5 percent. Most credit cards, auto loans, home equity loans and lines of credit are linked to the prime rate so when the Fed raises its target there will be an increase in the prime.
2. It's not too late.
Despite four rate hikes this year, mortgages have remained relatively low. According to Freddie Mac, the average rate on a 30-year mortgage actually fell to 5.71 percent in the latest week from 5.81 percent the previous week.
Mortgage rates generally follow the Treasury market (10-year Treasuries) and move up and down with expectations about the economy.
For that reason, you may not want to wait any longer before locking in a fixed-rate. Log onto Bankrate.com for the latest moves in mortgage rates and shop around at HSH.com.
If you have an adjustable rate mortgage take the time to check the terms of your loan and whether you are hitting your locked rate deadline soon.
3. Drunk on credit? Sober up.
The bulk of credit card rates are tied to the prime rate but there may be a bit of a lag as issuers may re-price a month or a couple of months after an interest rate move.
Greg McBride, senior financial analyst at Bankrate.com, warns credit cards offer no protect from higher rates. Fixed rate cards aren't a safe haven either. Issuers can change the terms of fixed rate cards with as little as 15 days notice.
The best solution? Pay down your cards, starting with the one with the highest interest rate. You are best off paying that debt down now if you can.
4. Reconsider raiding your home's equity.
Home equity loans are lump sums borrowed at a fixed rate and paid off over a set number of years. A rate hike won't affect current loan holders, but current loan shoppers can expect to pay more.
The rate on a $30,000 HEL was below 6.6 percent in September but if you signed one now, your rate would probably be in the neighborhood of 7.4 percent, according to BankRate.com.
The same trend applies to home equity lines of credit (HELOCs). Most HELOCs are open-ended loans backed by the portion of the home's value that the borrower owns and have adjustable rates tied to the prime rate. HELOCs generally have no annual limits or per adjustment limits (other than a lifetime maximum of 18 percent).
If you have a one time credit need, you're better off with a home equity loan. Consumers who have ongoing credit needs, such as medical or tuition bills would be better off with the line of credit.
5. Now, the good news.
For those of you who have been trying to save money over the past few years, I feel your pain. Low rates have resulted in abysmal returns.
But rising rates means better returns for CDs (certificates of deposit), money markets, and savings accounts.
A CD is a time deposit with a fixed maturity date. CD's typically pay higher interest than a savings account but there's a penalty for withdrawing before the maturity date.
The average rate on a one-year CD was 1.43 percent in June, before the Fed started raising rates, now they're about 2.41 percent according to Bankrate.com.
Consider keeping your emergency fund invested in shorter-term CDs as you're likely to see a better return on your investment than with a regular savings account. If you want for a long-term investment, you may find better yields elsewhere.
Money market accounts give investors more access the money they've deposited while accruing interest on those funds. And, the average yields have been ticking higher as well.
Yields were less than 1 percent in June, but now they're about 1.39 percent according to BankRate.com.
As for bonds, you'll want to limit your exposure to long-term maturities (which may not be nearly as attractive as yields rise and become more attractive) and concentrate on short-term debt.
Gerri Willis is a personal finance editor for CNN Business News. E-mail comments to 5tips@cnn.com.
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