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:
- 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!
- 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.
- 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.
- 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.