What Rising Interest Rates Mean For You
After years of low interest rates, the Federal Reserve recently announced its intention to raise interest rates in the U.S. to combat inflation. That change could have an impact on your finances, especially if you intend to buy a home, carry a balance on your credit card, or take out a loan. But first, here’s a bit of background on the underlying rate set by the Federal Reserve – the so-called “Prime Rate.”
The Federal Reserve and the Federal Funds Rate
The central bank of the United States is the Federal Reserve. It issues U.S. currency, and is responsible for setting the interest rate that banks use to lend to each other. This “federal funds rate” or prime rate is also a benchmark upon which all other interest rates in the country are set. It has a large impact on both the U.S. economy as a whole – and the financial products people like you rely on every day.
Mortgages
Even though interest rates for mortgages have been at historic lows in the recent past, low inventory and skyrocketing prices have made it difficult for most home buyers to see real savings from the lower mortgage rates. While mortgage interest rates will likely rise in the near future, it may be worthwhile to run the numbers for your situation if you’re still looking for a home. You might have a chance to lock in a lower monthly payment on your mortgage – before rates return to higher levels.
Currently paying a mortgage? You may want to look into refinancing if you haven’t already. Depending on whether your interest rate is fixed or not (or what your rate was when you locked it in), you could be able to save on your monthly mortgage payments by refinancing before rates rise again.
Learn more: Is a mortgage refinance right for you?
Credit Cards
Many credit cards in the U.S. use a variable (or “floating”) interest rate which changes depending on the prime rate. If you carry a balance on your credit card, you’ll be charged an amount based on the current interest rate applied to your balance. In times when the fed funds or prime rate is high, that means you could end up paying more interest on your balance from month to month than you would when the interest rate is lower.
Loans
Whether for a car, boat, or business, those in need of funds will find themselves paying more in interest as the federal funds rate rises. If you currently have a loan, it may be worthwhile to consider refinancing before interest rates rise again.
Savings Accounts and Certificates of Deposit (CDs)
Though higher interest rates make borrowing more expensive, they can also make saving more lucrative. Savings accounts and certificates of deposit (CDs) typically pay you in interest for keeping money in your account. After several years of lower yields, these savings options will become more attractive as interest rates rise.
High Yield Checking Accounts
Like savings accounts, rising interest rates can also affect the return on your balance in a High Interest Checking Account – assuming you qualify to earn it. Learn more about our High Interest Checking Account.
Current Interest Rates
View rates for CDs, checking accounts, savings accounts, and more.
View personal & auto loan rates
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