Rising Rates

Posted by Mackenzie Arsenault on December 27, 2016

On Wednesday, December 14th the Federal Reserve increased interest rates by 0.25%, to a range of 0.50% - 0.75%.  This was the second increase in a decade, the last one being December 2015. The increase reflects the Fed’s confidence in the US economy and Janet Yellen stated that they expect the economy to continue performing well. Some economist are predicting that the rates could rise at a faster pace next year; fueled by the new administration’s plans for ‘big spending’. The increase in demand could spark inflation and the Fed’s counter for inflation is raising rates.

What does this mean for you? With the rising rates we expect the cost of borrowing to become more expensive but this should also mean higher interest on deposits. Here are some moves to help you prepare for additional rate increases:

1)      Refinance loans – Have you been forgoing a mortgage refinancing thinking rates could go lower? Now is the time to capitalize on any rate decrease you may receive from refinancing. For student loans with higher rates, it may be wise to refinance into a fixed lower rate loan.

2)      Switch from variable to fixed rate – Variable rate products are expected to rise; credit cards, student loans, adjustable-rate mortgages. Consider switching your product now to lock in a lower fixed rate, or increase debt pay down on these variable rate products.

3)      Review deposit rates – Though small, banks are expected to increase the rates on their deposits. Typically online banks, credit unions and smaller banks can offer a higher return on deposits, shop around to get the best deal!

4)      Keep pristine credit – The best way to receive the lowest interest rate is to have good credit; continue making on time payments and consider setting up automatic payments on monthly bills.

As with many financial decisions each situation is different. Please be sure to consult your financial planner before making changes.

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