Interest rates are a key economic factor that affect many aspects of our lives. The Federal Reserve, which sets the cost of borrowing between banks, determines how much you’ll pay when you take out a mortgage, use your credit card or deposit money in your savings account. It’s important to know how rate hikes could impact your finances so you can plan ahead.
When the Federal Reserve raises rates, it makes borrowing more expensive. That includes mortgages, credit cards and student loans. It also impacts companies that rely on borrowing to expand or purchase materials for new projects. For example, Johnson&Johnson, Hershey and Caterpillar recently warned that higher interest rates could cut into their profitability.
Rising rates can also encourage people to save more. That’s because the return on savings accounts and CDs tends to increase when the Fed raises rates. As a result, less money is in circulation and may help to slow down inflationary pressure.
In addition to helping you make smart saving and investment decisions, financial advisors can assist with creating wealth management strategies that help you prepare for the effects of interest rate changes. They can help you find ways to increase your emergency savings, pay off high-interest debt and diversify your investments so that you are prepared for any economic conditions. To learn more, talk to your financial advisor today.