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HOW THE FED RATE HIKE COULD IMPACT YOUR WALLET

December 18, 2015
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HOW THE FED RATE HIKE COULD IMPACT YOUR WALLET

After many months of speculation, the Federal Reserve voted on Dec. 16 to raise its key interest rate for the first time in nearly a decade. After cutting interest rates down to zero after the 2008 financial crisis, this decision signals a renewed confidence in the American economy. The .25% rate hike, although it doesn’t sound like much, could eventually affect millions of Americans who have savings accounts, credit cards, 401(k)s, or plans to buy a house or car.  

Here’s how the Fed’s decision could affect you:

  1. Thinking about buying a new home? The rate hike could increase yields on the long-term bonds used to set mortgage rates, which could lead to slightly higher borrowing costs for home buyers. For example, a $300,000 home with a 30-year mortgage set at 4%, means a monthly payment of $1,432. If the interest rate increases to 4.25%, your monthly payment jumps to $1,476 – a $44 increase. Bottom line – while increased rates aren’t guaranteed and would likely not be too significant, if you’re in the market for a new house it’s smart to start paying attention! 
  2. New car? Similar to buying a house, the cost of borrowing to buy a new car could rise. Bottom line – with the .25% hike, there will still be attractive financing option. However, if there are future hikes on their way, auto loans could become much more expensive.
  3. Your savings account. After earning virtually zero interest over the past seven years, savers might start to see a very gradual change in the coming years – but it probably won’t amount to much. Bottom line – unless there are more rate hikes, returns on savings will most likely not see significant change.
  4. The stock market. There may be some volatility as the dust settles from the Fed’s decision, but any turbulence could be temporary as we’ve known for months that a rate hike was impending. Bottom line – speak with a Russell Capital advisor to make sure you have a well-diversified portfolio and turn your focus to long-term goals, instead of short-term forecasts.

Contact Russell Capital to find out how we can help you build a financial foundation that can weather economic change – [email protected], 859.254.5225.