For Mark Roberts’ Use: Last month, the Federal Reserve announced a rate hike. The benchmark federal funds rate was increased by 25 basis points, which translates to a 1.5 to 1.75 percent bump. To explain the rate hike, the Fed stated, “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”.
So, the good news is that this rate hike reflects a growing and improving economy. But you might be wondering how the rate hike will affect you on a personal level.
Good news: Interest rates will rise. For those who have money in the bank, the rate hike comes as good news. Interest rates on savings accounts or certificates of deposit (CDs) should increase a bit. Of course, the increase is still relatively small at this time. Remember that banks can differ quite a bit in their offerings, and that shopping around for the best rate is usually a good idea. In particular, credit unions and online banks are known to offer the highest rates currently.
Now for the bad news: Interest rates will rise. Earning a higher interest rate on your money is a good thing; paying higher interest rates on money that you owe? Not so much. The downside of interest rate hikes is that credit card and loan companies will be increasing their rates charged for lending money. If you don’t have a lot of debt, you don’t have to worry too much. But if you do have debt, making a plan to reduce it is more important now than ever.
Since rates were raised in response to an improving economy, we might see that trend continue in the near future. This means you could continue to pay more interest on money that you owe.
Along the same line of thought, if you’re considering a large purchase (such as a car), the market is still fairly competitive. But if you wait much longer, it is possible that rising interest rates could make a loan (such as an auto loan) less attractive in the future.
For those of you with adjustable-rate mortgages, we probably don’t need to tell you this rate hike will impact you. If you haven’t already considered a refinance, now might be the time to do so. On the other hand, those of you with fixed-rate mortgages don’t need to worry.
The bottom line is that this rate hike could be good for those with money in the bank, but bad for those who owe! The effects will depend upon your individual financial situation. Speaking of that, remember to meet regularly with us to review your short-term and long-term financial outlook. We can help you analyze current conditions and make plans to make the most of them.