10 Things to Watch When Interest Rates Go Up - Part 3

Many facets of consumers' lives may be negatively impacted, perhaps for years to come, by the Federal Reserve's aggressive rate-raising strategy. What to keep an eye on as interest rates rise, so you can guard your finances:

Increased Interest on Money Market Accounts

Money market funds, like savings accounts, can benefit from an increase in interest rates. Compared to traditional savings and checking accounts, money market accounts typically provide a greater return on investment. Investments in certificates of deposit, bankers' acceptances, and repurchase agreements are commonplace for these funds.

The Cost of a Mortgage Could Go Up

Costs for potential buyers will go up as interest rates go up because of the 30-year fixed rate mortgage, which is based on the long-term outlook for interest rates. A 15-year fixed-rate mortgage offers borrowers a lower interest rate at the expense of a shorter loan term (but incur higher payments each month under the shorter loan term).

As of March 22, 2023, the average interest rate for a 30-year fixed mortgage was 6.94%, while the average interest rate for a 15-year fixed mortgage was 6.18%. Rising interest rates won't affect homeowners who have locked in a fixed mortgage rate.

Rising Interest Rates on Credit Cards

The cost of borrowing money from a bank, including using a credit card, typically rises when interest rates rise. As of March 20, 2023, the average interest rate for a credit card is 21.92% for new offers and 19.07% for existing accounts.

If a consumer has a variable APR credit card, their rate will increase in response to an increase in the prime rate.

Schulz says, "That's a really significant thing, especially given that most Americans are on a tight budget and have a very thin financial margin of error," in reference to the fact that consumers often feel the effects of an interest rate hike first on their credit card debt.
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