The financial media has been buzzing with the possibility of a looming interest rate hike.
Most economists believe the Federal Reserve is determined to hike interest rates as early as September. This after almost 6 years of a zero interest rate policy.
So what do higher rates mean to you?
First, it means savers will be happier. Savings, CDs, and bank money market interest rates will all increase. In addition, newly issued bonds will have slightly higher coupon rates as well. So conservative investors will benefit.
Second, borrowing will be more expensive. It means we will all pay more to borrow on credit cards, home mortgages, auto loans and equity lines. So even though you are making a little more interest in your banking, you're paying a little more on your debts.
Higher rates could signal a stronger economy. That's right, higher rates mean the economy could be getting better. Higher rates will keep inflation in check. By making it more expensive to borrow it also slows consumer demand. That rising consumer demand from a strengthening economy causes prices to increase...or inflation.
Finally it could mean more stock market volatility. With uncertainty about how high rates will go and how fast, it will mean the markets will be nervous. Equity markets hate uncertainty.
So now what?
If you have higher rate credit cards or variable rate loans, it may be time to reduce that debt or find a better fixed rate. It will also mean that existing bonds in your portfolio will probably take a small hit when rates go up.
Keep an eye on your personal financial situation so you don't get caught with your financial pants down!
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