As interest rates go up, it becomes more expensive for you to borrow money. That’s because the Federal Reserve raises the federal funds rate when it wants to fight inflation and tamp down soaring prices. It’s already done this several times this year and many analysts believe it may do so again soon.
When the Fed raises the federal funds rate, lenders and creditors typically follow suit by raising their own rates. So when rates go up, it’s more expensive for consumers to take out credit cards or loans to buy a home, car or big-ticket item like a television. If you have a variable-rate debt, such as a credit card or mortgage, the higher rates will likely be felt within one or two billing cycles.
A rise in interest rates also hurts businesses, especially smaller ones that rely on investment capital from outside sources. A rate hike means that it’s more expensive for them to borrow money, so they’ll have to raise their prices or cut back on spending to make ends meet. This can lead to a slump in sales and profits, which isn’t good for the economy.
A silver lining in all of this is that savings accounts, money market accounts and certificates of deposit (CDs) will probably earn more interest as rates go up. So if you have some cash, it might be a good idea to get it invested now before rates go up even more.
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