In March, the Federal Reserve announced that it is raising the benchmark federal funds rate by 25 basis points, up to a range of about 1.5 to 1.75 percent. According to the Federal Reserve, “the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low”. In other words, the move to raise rates was a response to an improving economy… But how will the increase affect you personally?
Climbing interest rates. For those with savings accounts or certificates of deposit (CDs), the rate hike is good news. Your money in those accounts should earn a bit more interest. However, the increase, for now, is modest. Remember that you can always shop around for better rates, by comparing different banks (don’t forget about credit unions and online banks, which are said to offer the highest rates right now). This trend is expected to continue for the rest of the year.
The downside of higher interest rates. Rising interest rates is good news for those who earn interest on their money, but bad news for those who owe! Credit card companies and loan companies will now be charging higher interest rates, making borrowing a bit more expensive. Paying down revolving debts, like credit cards, would be a wise idea at this time.
If rates continue to rise, you might experience comparatively high quotes on auto loans in the future. For now, though, the auto loan market remains competitive. So if you were in the market for a new vehicle, this rate hike might not affect you too much just yet.
If you have an adjustable-rate mortgage, your house payment will increase as well. It might be time to consider a refinance. However, those with fixed-rate mortgages can rest assured that their rates are locked in for the term of the loan.
So, as you can see, rate hikes make for mixed news depending on whether you owe or have money in the bank! For more information on how this news might affect your long-term financial plans, or for any other planning advice, call us to schedule a consultation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.