The Federal Reserve, or The Fed, raised interest rates this year to combat rising inflation. For consumers, higher interest rates mean higher borrowing rates on things like credit cards and car loans. Essentially, it will be a little more costly to borrow money. The goal is to cool off the economy by slowing spending and increasing how much individuals save.
We’re here to help you navigate what may feel like an overwhelming time in our economy – at the gas pump, at the grocery store, and in your financial planning. Here are four things you need to know about your finances with raised federal interest rates.
1. Raising federal interest rates is normal.
The United States has enjoyed an economy with relatively low-interest rates for the past decade. This isn’t to say that the consumer economy has always been “good,” but inflation has remained relatively steady.
But we shouldn’t forget that raising federal interest rates is a normal part of a functioning, stable economy in the U.S. In fact, between 2004 and 2006, The Federal Reserve raised interest rates 17 times to combat inflation.
2. You could be saving more by keeping your money in a savings account.
When federal interest rates are raised, financial institutions can increase their annual percentage yields on savings accounts. The goal is to incentivize savings and curb consumer spending.
But more importantly, this means the money in your savings can actually grow faster. While we can’t be sure what will happen in this economic chapter, it is undoubtedly a safe time to continue saving.
3. Buying a home or car could be more financially challenging.
When federal interest rates are raised, it means borrowing money is more expensive for consumers. This means taking out a loan, like getting a mortgage, will be more expensive.
According to the Associated Press, “Chair Jerome Powell hopes that by making borrowing more expensive, the Fed will succeed in cooling demand for homes, cars and other goods and services and slow inflation.” This means you may have to wait on making big financial choices, but in the long run, it will contribute to a balanced economy and better buying rates.
4. Your bank has your back.
Bank Midwest is celebrating its 140th anniversary this year, which means we have a long history of supporting customers through challenging economic times. Our experts are here to help you dream big, plan wisely, and live better.
Do you have questions about our current economy? Listen to this conversation with Steve Goodenow, former CEO/President and current Board Director of Bank Midwest, on the Dream, Plan, Live podcast.