Loans, including credit cards with variable rates, will become more expensive when the Fed finally raises interest rates.
It’s going to happen eventually. Fed Chair Janet Yellen will eventually announce the Federal Reserve will finally raise interest rates above its current near-zero level, and that announcement will set off a flurry of activity on Wall Street and in the investment banks around the nation.
But what does that decision mean for you?
Patrick Gillespie of CNN Money provides the details under the headline “What an Interest Rate Increase Means for Real People”, and it offers reasons why a normal everyday American should pay attention to what Yellen says when she says it.
“In short,’’ Gillespie writes, “life is about to get better for savers and a little harder for borrowers. Investors could also face tougher times.”
Anyone making decisions that include an interest rate will be affected by the coming changes, whether they happen in June as expected or if the Fed waits a little longer to increase the rate.
Mortgage rates will finally go up. Until the Fed raises the rate, mortgage applications will skyrocket as home buyers try to get the lowest rate possible on a home purchase. A Freddie Mac loan is still under 4 percent, but will be one of the first things to climb with the announcement of a new rate.
Mortgage rates may actually increase before the Fed raises its rate as banks take advantage of the anticipated rise and gets a head start on making more money from their loans.
The same goes for car loans, which have been offered at historically low rates since the recession. The auto industry has enjoyed significant growth in recent years thanks to low rates and the economic recovery, and will be watched closely again when rates begin their incremental climb.
While it has been advantageous to buy a home or car with the interest rates low, saving money has not been beneficial, as interest rates on savings accounts has been near zero. Since buying will be less attractive with a higher rate, saving will become more attractive.
Banks have been waiting with bated breath for the Fed to raise rates, but one of the reasons it has not done so yet is because the economic recovery did not show enough signs of sustainability. One such sign is wage growth, which has not yet happened. The new interest rate could actually prevent wage growth from taking place any time soon.
Any credit card that carries a variable rate will charge more for credit when the rate increase occurs. Such higher rates occur not on balances but on future purchases.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.