Home > 2015 > Managing Debt

What Would Higher Interest Rates Mean for You?

Advertiser Disclosure Comments 0 Comments

In recent years, we have been experiencing low interest rates and some of us may have even tuned out any of the Federal Reserve’s news and announcements. But right now, it is important to pay attention. Even if you have already heard about the coming rise in federal interest rates, you may not understand all of the terms or how this could affect you. Raising the interest rate doesn’t just affect the economy as a whole, but also your personal financial situation. It’s a good idea to get educated about what a federal interest rate hike means to you so you can adjust accordingly and ensure a safe financial future.

The What

The Fed has been hinting since last year that the time of low interest rates could be coming to an end. This comes after years of keeping the federal funds rate, the target interest rate banks charge each other to borrow Fed funds overnight, near zero since the 2007-2009 recession in an effort to avoid an all-out depression. Generally, signs of an improving economy include a lowering unemployment and rising inflation. Unemployment numbers have been dropping and the Federal Reserve Chair Janet Yellen has said that rates will be increased by the end of this year. (If you need a quick explainer on how interest rates work, here’s a good guide.)

The Why

It may seem silly to you that federal interest rates would be increased, but this is actually a reflection of an improving economy. A higher rate makes money more costly to borrow. This starts at the federal funds level then hits the rest of the economy from banks all the way to the average consumer. The rates are being increased to tighten the credit market after years of near-zero borrowing by major American banks during and after the Great Recession.

The ‘What Now?’

So how does all this affect you? It turns out that a federal funds rate increase can affect many facets of everyday life from paying your credit card bills to refinancing your mortgage and paying back your car loan. If you’re a saver, things are about to get better but if you’re a borrower or investor, they may get a little bit harder.

Higher interest means your savings account can earn more, but you will have to pay your lender more for any loan you want to take out and probably for charges on your credit card (unless you pay the full balance each month). It also means you will likely receive a higher return on your bonds and that the American job market is improving.

If (and it’s really more a matter of “when” now) interest rates rise, your credit score becomes even more important to maximizing your borrowing power. Improving your credit score can actually help combat rising interest rates, since you can qualify for lower rates with a better score to counteract the interest increase. You can check your credit scores for free on Credit.com to see where you stand.

The important takeaway is that the average American is affected when the Federal Reserve adjusts interest rates and it’s a good idea to pay attention to when it’s happening and why. Consider how the 2015 hike will affect your personal finances. (You might want to go ahead and take out a mortgage before rates rise, or you may decide to choose a short term for a CD so that you can lock into a longer term when rates are higher.) The more you know, the better you can budget and protect your financial interests for years to come.

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team