If you follow the financial news, you’ll know that the Federal Reserve are tentatively talking about raising the interest rate. It’s now been at a static rate for nearly ten years. In 2006, the government put the economy on a drip feed, to help sustain its recovery. The financial crash took a toll on banks, borrowers, and the general public. To help ease the pain, the Federal Reserve put the interest rates close to zero. It was a way of encouraging borrowing again, and getting the economy back on its feet.
Now, the government and Federal Reserve believe the economy is strong enough to thrive. They’re ready to take off the support and put us back on a full interest rate. Some say the rate may rise significantly. That means that lending rates across the country will see a sharp boost. The new initiative is whispered to kick in between December of this year, and March of next. So, what exactly will this mean for you and your money? It’s all tricky financial talk, but how will it impact your family? Here are the headlines.
Mortgage rates will increase
The biggest impact of a rising interest rate is that borrowers will feel the burn. A hike in interest rates means all lenders will have to nudge up their interest rates in return. Quite simply, the national interest rise will be passed on to you, the public. If you’re currently paying back a mortgage, the interest rate will rise significantly. It means you’ll end up paying back more over the required period. The same thing will happen with your car loan, a personal loan, and credit card interest. Quite simply, borrowers are hit hardest by a 1% interest rise.
Savers are rewarded
The last decade’s band-aid has helped people borrow without much or any interest. However, it has meant that savers have struggled with almost no interest in their money. When you keep your money in the bank, you are rewarded with a certain interest. Naturally, if the national interest rate is low (close to zero), then you’re getting nothing back. When the interest rate spikes up, that will be passed onto you. If your money is safely in a savings account, you’ll get an extra injection of interest. Lucky you.
The interest rate increase will have a ripple effect throughout the financial industry. Businesses that have borrowed money will suddenly see an enormous rise in interest. That will throw their accounts into a frenzy. That will worry investors, which will send the stock prices into a freefall. As companies and individuals begin to adapt to the new rates, things will level out. In fact, it means that big business can flourish again. However, there will be a period of instability and volatile share prices in the months following.
On the other hand, the government assures us the interest hike will increase job opportunities. It will help businesses get back on their feet, generate more income, and create new jobs. So, now you know what to expect!
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.