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What Does the Fed’s Rate Hike Mean?

October 31, 2022

What Does the Fed’s Rate Hike Mean?

The Federal Reserve periodically adjusts interest rates to stabilize the U.S. financial system. Recently, the Feds have raised the interest rates. Erin Kennedy discusses what these recent interest rate hikes mean to you with money expert Tom O’Connell from International Financial. While it’s mostly bad news for the average consumer, your financial future is anything but bleak.

Prices Rise across the Board

When interest rates go up, things cost more. The interest rate set by the Feds affects interest rates on loans of all kinds. This includes mortgages, home equity loans or lines of credit, car loans, and credit cards, increasing the cost of debt for everyone. This is bad news for debtors looking to add debt.

Your current fixed-rate loans will not be affected. But if you have a variable interest loan or plan to take out a new loan of any kind, you will pay more than you have in the past. If you don’t have a choice about getting a loan, it’s better to secure your new loan sooner than later, because the Fed will probably keep raising the interest rate.

Possible Good News for Savers

Higher interest rates don’t translate to just bad news. What’s bad news for new debtors can actually be good news for savers. With the increase in interest rates, you may see a slight increase in your rates for your savings account and money market accounts. The rate increase may also translate to bonds. In short, fixed-income investment vehicles may earn more interest. The flip side of this is that the value of these investment vehicles could go down over time because of the interest increase.

How to Take Control of Your Money

When interest rates go up, it affects people in their everyday lives. Someone who wanted to buy a house may not be able to afford it after the second or third interest rate hike. Similarly, paying more for credit cards or car loans reduces your available spending money. You may think this is only a problem for people who use debt to purchase things. But the truth is even people who don’t have debt lose out when they purchase things with cash. Now that cash is no longer available to earn interest and build wealth.

One solution to this problem is an innovative approach called infinite banking. In “Becoming Your Own Banker”, author R. Nelson Nash explains the concept of infinite banking. It may be beneficial to work with a financial advisor to understand the concepts of being in control of your own debt instead of serving a lender.

The best financial advisors continuously educate themselves and their clients about what is possible in the world of money. Your financial future doesn’t have to crumble with the rise and fall of interest rates if you put yourself in the driver’s seat. Taking charge of your finances is the best way to reach your goals, whether that’s saving for retirement or building generational wealth.