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Interest in Interest – Things to Watch for with the Fed’s Rate Change

Interest Rates

By: Diane Puthoff

In December 2015, the Federal Reserve announced an increase in the interest rate by 0.25%. While this may not sound like much, it indicates the United States economy is stabilizing and can bear a rate increase. Of course, the effects of a rate increase go beyond mere increases in the interest we can earn at a bank – it will also lead to increased lending costs for credit cards, bank loans and mortgages – but some of these effects may be rather slow to hit home.

While mortgage rates will slowly increase, it seems that for most, those with credit card balances and short term or variable loans might feel the effects of the rate increase the most. For those interested in refinancing or purchasing a home, you can shop around for the best interest rate and take advantage of alternative loans which might satisfy your needs. But for those who rely on credit cards and short-term loans routinely (and don’t pay off these short term loans quickly) the effect of a rate increase which compounds month to month could be significant on their monthly or weekly budget.

Once these effects actually do begin to hit home, because low lending rates have become commonplace, a mere 0.25% increase may actually feel like much more than a quarter percent. As these changes are implemented, everyone should review their portfolios (both asset and lending accounts) and take advantage of the coming changes as they are implemented. As lending rates increase, the ability to obtain a mortgage might become more difficult for some, so perhaps consider refinancing your residence to take advantage of the low rates. As savings and CD interest rate increase, which may be a ways off still, consider shifting cash accounts to higher interest bearing accounts.

Keeping a close eye on your portfolio will remain key as the Federal Reserve makes changes in the future – there is a long road ahead as the Federal Reserve makes gradual shifts as our economy strengthens.

Diane practices primarily in real estate transactions, ERISA and retirement planning, and estate planning at Lane & Waterman.