GREENSBORO, N.C. — When most people hear the phrase: interest rate hike they panic and immediately think doom and gloom. Money expert Ja’Net Adams says interest rates can be positive or negative on stocks, bonds, and your savings.
Interest rates affect our finances, student loans, mortgages, savings accounts, and investments. The Federal Reserve raised its benchmark interest rate by a 0.75 percentage point in June, the biggest hike since 1994.
Adams, who wrote the book, The Money Attractor, said most people assume the rising rates are terrible for everyone, but there are ways to make it work for you.
Here are three areas where you can benefit from the interest rate hike
Housing market:
“As soon as interest rates started going up, the housing market started to cool down,” Adams said. “Before the hike, the only people affording homes were those with deep pockets, hedge funds, and companies looking to make a profit.”
At that point, first-time homebuyers were outbid of that first big purchase and forced to wait out the hot housing market.
“Now that mortgage rates are rising, those same people are leaving the market, which means home prices will decrease, and first-time homebuyers will soon be in a position to buy again,” Adams said. “There are more houses on the market. And the prices of items to build a house such as lumber are drastically decreasing.”
Even though you may have a higher mortgage interest rate, the houses could soon be $100,000-$200,000 less than they were during the height of the housing bubble.
Savings Rate:
“Zero or low-interest rates like the ones we have been seeing for the last two years were not good news for your savings accounts,” Adams said. “Now that the interest rate is rising, so will the rate on your savings account. Some think the savings rate will reach 2% by the end of the year. Right now, it is not even reaching 1%.”
The Federal Reserve’s goal in keeping the interest rate low is to get Americans and companies to spend money and boost the economy.
“The economy is too hot, so the Reserve is raising rates with the goal of getting Americans and companies to pull back on spending. As a result, people will save more money. Another side effect of that action is that retail stores ultimately have more supply and must put everything on sale to move it out of the store. There are sales in almost every store that you can take advantage of thanks to the interest rate hike from the Feds!”
Forces Action:
The rising interest rates make borrowing money more expensive. It also makes current debt with rates tied to the federal funds rate more expensive. And that includes your credit card debt.
“So many people carry a balance and have been meaning to pay that balance off. Now that the rate on your credit card is increasing, it may force you to pay it off. If you can't pay the balance off, then you need to move it to a zero-interest credit card. Your last resort will be to call the credit card company and ask for a lower interest rate so that you can pay it off soon,” Adams said.”
Keep in mind that by raising interest rates, the Federal Reserve is signaling that there are economic factors that are not on course to bring inflation from 8.6% back down to 2%. And the biggest con of raising rates would be the risk of sending the economy into a recession.
You can protect your money now and in the future by saving where you can.