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Monthly Archives: April 2018

The Pros and Cons of Rising Interest Rates

  By Z. L. Brown | April 3, 2018 - 11:12 pm | Debt Management
Comments Off on The Pros and Cons of Rising Interest Rates

The Federal Reserve recently raised interest rates one-quarter of a percentage point (0.25%).  That may not seem like much, but even a slight rate increase can impact how consumers spend, borrow save or invests.  (Sample impact on mortgage or credit card repayment)

Here are a few pros and cons how how an interest rate hikes can impact you:

Pros:

  1. Savings accounts become a bit more profitable.  You earn more interest on savings when interest rates rise.
  2. Certificates of Deposit (CDs) and Money Market Accounts (MMAs) also become more attractive as higher interest rates means profits to short-term investors in this investment vehicles.
  3. Bond yields increase making these low risk, long-term securities a touch more appealing to investors looking to shift some of their investment dollars away from the volatility of the stock market.

Cons:

  1.  It costs more to borrow money when interest rates rise which means loans will become more expensive.
  2. Credit becomes tighter making it harder for consumers to get approved for credit cards, credit limit increases or home equity lines of credit.
  3. Mortgage rates will increase.  So, if you considered refinancing now is the time to do it before prime lending rates nudge into the 5-6% range.  Homes sales decrease as well.
  4. The cost of consumer goods will slowly get more expensive. (Translation:  Inflation will slowly eat away at your disposable income.  Time to adjust your household spending plan.)

A slight interest rate increase may not seem like much, but even a small increase can have a big impact on your wallet, credit line or investment portfolio.  Now is a good time to re-evaluate your spending or borrowing needs.

Zebert L. Brown

Zebert L. Brown is the author of Break the Debt Cycle in 3 Simple Steps and a 16 year Navy veteran with specialties in administrative management, career development and public relations. Follow him on Facebook and Twitter.

Tagged bond yield, bonds, borrowing, CDs, equity line of credit, Federal Reserve, money market account, savings account
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