The Fed Raised Interest Rates: Now What?

Financial tips

The Fed Raised Interest Rates: Now What?

Posted by Infinite Wealth Advisors, LLC
6 years ago | April 9, 2018

By now, you have probably heard the news that the Federal Reserve announced a rate hike in March. They made the decision to increase the benchmark rate by 25 basis points (or 1.5 to 1.75 percent), because, “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 economy is overall healthy and growing.

So, an improving economy is good news for all of us, but how will this rate hike affect you individually? Well, that depends on a number of factors, most importantly:

Do you have money in the bank, or owe money to creditors?

That’s it in a nutshell, but of course we’re oversimplifying things a bit. Many people both have money “in the bank”, and also owe money to someone else. So let’s break it down a bit farther…

Interest rates will rise, for savings accounts, certificates of deposit (CDs), and so on. If you have money in the bank, it can earn more interest. But since interest rates can still vary among different banks, it is always a good idea to shop around for the best rate.

Interest rates will also rise for auto loans, credit cards, adjustable rate mortgages. Currently, the auto sales market is still quite competitive, so the immediate impact on auto loans will be minimal. Still, if the trend of rising rates continues, you could end up paying more for a new vehicle in coming months or years. For now, we’re not overly concerned.

The bigger concern is credit card debt and adjustable rate mortgages. With card rates rising, it’s more important than ever to pay down those balances and avoid any charges that you can’t pay off right away. If you have an adjustable rate mortgage, your payment will increase… And if this trend continues, you might begin to feel a pinch in your budget. If you haven’t refinanced to a fixed-rate mortgage yet, it’s probably time to seriously consider that decision. There is no indication rates will drop any time in the immediate future, and it’s more likely that they could continue to rise.

We’re breaking down this issue into pretty simple terms, for the purpose of a short blog. But to learn more about how this news might affect your situation personally, schedule a meeting with us. We can review your concerns and help you decide on necessary changes to your financial plan, if you’re feeling concerned.

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