After years of near-zero rates, the Federal Reserve is finally raising its benchmark interest rate in a move that will affect consumer spending and savings. Learn how it will impact you, and consider working with a financial advisor to position your savings, investments and debts in the best way for you and your family.
When the Fed raises its rate, it means that borrowing becomes more expensive – for example, credit card rates may increase by as much as the Fed’s hike, which will have an immediate effect on your bill. Car loans and mortgages may also be affected by the higher rates because those rates are typically tied to the yield of domestic 10-year Treasury bonds.
The goal is to slow the economy as a whole by making it more expensive to borrow, which will discourage spending, and hopefully lower inflation. This is a delicate balance the Fed has to strike as they work to keep the economy running smoothly, without stoking inflation or causing an economic slowdown that could lead to job losses.
While rate hikes aren’t great for those who carry a lot of credit card debt, it is great news for savers. Savings tools (like bank accounts and certificates of deposit) are able to offer higher rates of return when the Federal Reserve increases its benchmark rate, meaning that your money will grow faster. That’s why you should always be checking the rates offered on your savings and investing tools to make sure you are getting the most bang for your buck.