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:
- Savings accounts become a bit more profitable. You earn more interest on savings when interest rates rise.
- 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.
- 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.
- It costs more to borrow money when interest rates rise which means loans will become more expensive.
- Credit becomes tighter making it harder for consumers to get approved for credit cards, credit limit increases or home equity lines of credit.
- 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.
- 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 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.