How does higher interest rate affect your personal finance?

Be the First to Comment Read

How does higher interest rate affect your personal finance?

 How does higher interest rate affect your personal finance?
Image source: © Mackon | Megapixl.com

Highlights:

  • Federal Reserve’s rate hike can affect your personal finance in a big way.
  • One should refrain from taking new loans when the interest rate is ascending.
  • The Federal Reserve is increasing the interest rates to tame rising inflation.

If an interest rate hike is troubling investors and unleashing fear of a recession, the Federal Reserve's decision also impacts the personal finance of every American. Millions of people will have to rejig their finances to adapt to the central bank's rate increase.

Here, we will look at how we can mend our ways and protect our money during high inflation, and keep our future safe:

Clearing off credit cards, other loans first:

Credit card debts and other loans with variable interest rates could be very costly when there is a rate hike. To save on high-interest rates, one should always clear such debts at the outset. Buying a vehicle or a home can be put off for a while till the market cools down. The idea is to pay all debts before they become dearer. An interest rate hike means a higher borrowing cost, and there is nothing as costlier than a credit card. So, that should be at the top of the list. One should start paying the one with a higher interest rate first.

Also Read: US stocks rise after Fed's half-point rate hike; MRNA, SBUX, LTHM rally

Does Fed Reserve’s interest rate hike affect your personal finance?

© Mb2006 | Megapixl.com

Also Read: US stocks close higher as Fed meets on rate hike; PFE, BP, WDC rally

Maximizing returns on savings

The upside of a Fed rate hike is a slightly higher rate offered by banks and other lending institutions. Evaluate some high-yield savings accounts and other savings instruments. A high personal savings rate can help accumulate a good amount of money during a rate hike. One should also try to capitalize it. If any excess amount is left after the monthly budget expenses, one should immediately explore putting that amount in a savings instrument with a high-interest rate.

Prioritize financial moves

As mentioned above, one should postpone taking new loans if possible. Auto loan, for instance, became costlier in June than it was in March. Moreover, individual lenders and dealers may charge different interests. Hence, one should calculate before taking any loans when there is a rate-hiking spree.

Bottom line:

Mortgage rates largely depend on the 10-year US Treasury bond yield, which is also a benchmark for several types of loans. When there is a rate hike, it pushes the yield on the Treasury note upward, which then sends mortgage rates higher.

Disclaimer

Speak your Mind

Featured Articles