An interest rate hike affects how much you pay on credit card balances, car loans and mortgages. It also affects savings accounts and investments. When the Federal Reserve or other central banks raise rates, borrowing costs rise. This discourages spending and entices people to save.

The Fed has raised rates multiple times this year and may do so again. In an effort to combat inflation and slow the economy, the Fed needs to raise interest rates. This increases the cost of taking out a mortgage or other loan and reduces consumer spending. As a result, the economy slows down and inflation begins to decline.

But raising interest rates isn’t always easy. The last time the Fed tried to tame inflation was in the 1980s, when the target federal funds rate hit 19-20 percent. That’s the highest level in recorded history, according to Bankrate.

In addition to domestic economic effects, interest rate hikes can reverberate globally. In a 1998 paper, academics Frank Rose and Barry Eichengreen found that when rates in developed nations are low, foreign investors will invest more in emerging markets. But when those rates rise, foreign investors will withdraw their capital. The resulting financial crises have been devastating for some developing economies.

For the average person, the best way to save is by paying off high-interest debt first. This can free up hundreds of dollars in payments that could go toward savings. Other ways to save include cutting back on unnecessary purchases, like canceling a subscription service, or switching from an expensive gym membership to a local version.