“For savers, a rise in Federal Reserve interest rates is good news” – Rachel Podnos
The Federal Reserve
The Federal Reserve has already raised interest rates once this year, and they are projected to raise rates at least two to three more times in 2018. According to CNBC.com, the Feds increased the target range from 1.5 percent to 1.75 percent.
What Is a Rate Hike?
There are positive and negative effects of rate hikes on the economy. Rate hikes or interest rate increase means that the Feds have increased the cost to borrow money. On the other hand, savers can be rewarded with greater returns on savings accounts or money market funds.
What Causes Rate Hikes?
Interest rates can be raised to avoid inflation or decrease consumer spending. Additionally, interest rates can be raised to lower national debts.
What Does That Mean for Your Money?
Increased interest rates can impact funds in many different ways. Listed below are a few major components:
- Credit Card Debt/Payments – Once the Feds decide to hike interest rates you may notice an increase in your monthly credit card bills. This is a short-term effect of the rate hike.
- Auto Loan Payments –Like credit card payments, auto loan payments will increase due to the raised interest rates. Although you may notice the auto loan payments increase, it may be less noticeable with the credit card payments; nonetheless, it’s still a rate hike.
- Adjustable Rate Mortgages – Adjustable home mortgages will also be impacted negatively due to interest rate increase. This may discourage consumers from purchasing homes.
- Savings Rates – Interest rate hikes can positively impact the interest that traditional banks pay consumers for their savings accounts and CDs. Interest rate hikes can also increase the amount of interest that online banks pay consumers to keep their money with them. Online banks and Credit Unions typically pay bigger returns for savers.
Depending on how you look at rate hikes, it does not have to be all bad, especially if you make the proper adjustments. Do not feel like it is a waste of time to rebalance your budget to accommodate your needs. Stay focused and keep stacking.
