The Federal Reserve Systems (The Feds) job is to strategically change rates to accommodate the economic well-being of the nation. Their job is to keep the nation afloat by raising or lowering the cost of borrowing money. When the economy starts to grow too fast, which is what’s happening in today’s environment, the Fed may decide to raise rates in hopes that consumers slow down on borrowing.
These higher interest rates make loans more expensive. This strategy encourages consumers to postpone any projects that involve financing and simultaneously encourages people to save money so they can earn higher interest. While higher interest rates may be bad for borrowers, they are great for anyone with a savings account, as these rates tend to increase as well.
Here we’ll discuss a few ways the Fed’s changing rates directly impact you and your borrowing needs. But, as with everything, with the bad there also comes the good. We’ll also show you ways to take advantage of rising deposit rates.
The Borrowing Impact on You:
- Mortgages and HELOCs (Home Equity Line of Credit) — While fixed-rate mortgages are not directly impacted by the Fed, they may have some influence on their rates. If you already have a fixed-rate mortgage, nothing to worry about here – you’re locked in. However, variable rate mortgages and HELOCs are tied to the Prime rate, meaning those will rise along with the fed funds rate.
- Auto Loans — You might find that auto loan rates are on the rise too. Auto loan rates are dictated by the time of year, the type of vehicle, the borrower’s credit score and more. But the Fed sets the benchmark rate on which auto loan lenders base their rates.
- Credit Cards – Most credit cards charge a variable rate, meaning the rate can “vary” based on the Prime rate. So, when the Fed increases its rate, variable rates tied to Prime also increase. This can mean significant increases in your minimum payments each month. Unlike most credit cards, SafeAmerica’s Visa Platinum Rewards credit card has a fixed-rate, so your rate will not adjust.
Now Is The Time To Focus On Saving
There is some positive news in all of these rate changes. Savers tend to benefit from Fed rate hikes. Financial institutions will typically adjust their APYs (Annual Percentage Yields) in hopes to encourage more money on deposit with them. A win for you! Now would be a great time to look around for higher-yielding savings accounts as well as share certificates so you can start to earn more.
We’ve recently increased some of our certificate rates. To see our rates, click here.
What's SafeAmerica Doing With These Rate Adjustments?
“The recent rate increases from the Federal Reserve are an effort to alleviate the financial pressures brought forth from recent years. While it may seem worrisome, it is a sign of returning to “normal”. You can rest assured knowing that your credit union will begin to accommodate the rate increases in the form of leveraging higher-yield rates for our savings products.”
-Tom Graves, President & CEO of SafeAmerica Credit Union
Our team here at SafeAmerica Credit Union is closely monitoring and following the Feds rate adjustments as they come. Our number one goal is to continue to provide you with the most competitive rates in our area. As such, we look closely at our peers to assure we remain competitive, giving you the best rate we can. We understand these borrowing rate hikes have tremendous impact on you.
If you are ever in need of financial assistance, we encourage you to reach out to our financial wellness program, GreenPath Financial Wellness. They can help with anything from credit counseling, budgeting, or just financial education. For more information click here
Sources: Bankrate.com, Forbes.com
