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Bryan P. Keenan

What the Fed’s interest rate hike means for you

The Federal Reserve just announced that it is raising interest rates for the first time since 2006. Many Pennsylvania residents will feel the effects of the rate hike, though maybe not right away. Here is what you should know.  

The Fed has not raised interest rates for nearly a decade in an effort to boost the economy. By keeping interest rates low, the Fed hoped that people would borrow more money and spend more in exchange. The Fed also hoped that by lowering interest rates on bonds and savings accounts, people would want to invest in stocks and other riskier markets.

Now that the economy seems stronger, the Fed voted to set the new target range for interest rates at 0.25 percent to 0.5 percent, which is up from the 0 percent to 0.25 percent range. The rates are expected to increase gradually with time.

Most consumers will not notice the effects of the hike immediately. How quickly and strongly you will feel them depends on your financial situation. If you are planning to make a large purchase, such as a home or a car, you should be aware the cost of taking out loans is likely to increase. Even small increases in interest rates can add up.

The rate hike may impact certain existing home loans. Home equity lines of credit and adjustable-rate mortgages, for example, typically carry variable interest rates. This means that the rate could go up. You may want to consider refinancing to a mortgage with a fixed rate.

People with credit card debt may also be impacted. If your credit cards have variable rates, you can probably expect the rates to rise after one or two monthly cycles. This can make it more challenging to pay off credit card debt.

On the other hand, interest rates on savings accounts are not expected to increase much, if at all. Many banks were hit hard in the recession. They may keep these rates low to try to recover profits.

This post covers only the basics of the rate hike. If you are in debt and have concerns about how the increased rates could impact you, consider speaking with an experienced debt management attorney.

Source: Washington Post, “How the Fed’s interest rate hike could hit your wallet,” Jonnelle Marte and Thad Moore, Dec. 16, 2015

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