Why Not to Panic Over Rising Interest Rates

What the Impending Interest Rate Hike Means For the Everyday Borrower

Why Not to Panic Over Rising Interest Rates
September 3, 2020

For more than a year, the business press and Wall Street have been constantly consumed with the question of when the Federal Reserve Board is going to raise interest rates. Now comes the release of minutes from the Fed’s July meeting and, lo and behold, the central bank is nearly ready — again — to raise rates.

From everything that is written, you would think that bumping up the main interest rate of the U.S. central bank would be the kind of world-changing event that would move mountains, change tides and bring back the leisure suit. But for most consumers, the coming hike of the Fed’s discount rate will be about as momentous as brushing your teeth.

This is because absolutely no one is going to be surprised by the move. The Fed has kept its main interest rate at zero for all practical purposes for seven years. That means that logically there is only one direction that interest rates can go, and anyone who pays attention to such things knows that. Besides, the Fed has signaled its intent to eventually raise rates by using everything short of sending Chairwoman Janet Yellen out with semaphore flags.

That means that the eventual hike already is priced into long-term rates, such as thirty-year mortgages, which at about four percent, remain at near-historic lows. That tells us that the coming rate hike is not going to be all that drastic, and certainly won’t give consumers any big wallop.

In fact, the first hike the Fed is likely to make, either in September or sometime before the end of the first quarter of next year, is a whopping quarter of one basis point: 0.0025 percent.

So while day-traders and the rest of Wall Street are freaking out to chase this obvious eventuality, the average borrower does not have a lot to worry about. The fact is, interest rates will be going up, and the cost of borrowing will, subsequently increase. The Fed is not going to stop at just one quarter-point rate hike, though, which all means the low rates we have gotten used to since the Great Recession hit will be coming to an end in the next year or so.

In the meantime, the best move consumers can make is to lock in low rates now, consider your future borrowing needs, and refinance any current debt to keep low rates working for you even as they head up.

  • Refinance your home - If you had trouble before, lenders have loosened up a bit. Check your credit score and start shopping. Low rates mean you can even shorten the term of your home loan and save more. You can start here.

  • Cut your credit cards - With good credit, you can get a zero percent rate for up to eighteen months with some offers. Or just call your issuer and ask if you can get a better rate.

  • Lock in home equity - An equity line of credit at a low rate is useful for emergencies, or provides a cheaper way to finance other purchases. A line of credit can be used to refinance other debt, and interest is tax deductible.

  • Rev up a car loan - Low rates on car loans, especially at credit unions, make this a good time to buy. Credit unions also will refinance a car loan, if you are paying too much. Low rates have made leases attractive as well, so check out those deals.

  • Savers will have to wait - A small move from the Fed may nudge rates on savings accounts, money markets and certificates of deposit, but probably not much. Savers cannot expect any big boost to returns on their accounts in the near future.

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  Conversation   |   31 Comments

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Morgan | 09.03.15 @ 17:03
This is actually really good to know, because I have always been told that interest rates are the enemy.
trish | 09.03.15 @ 17:04
Definitely good information to have...learned a few new things from this article.
Chelsey | 09.03.15 @ 17:05
It's interesting to hear that an interest rate rising isn't a bad thing. Makes sensee that everyone was prepared for it though, since it's been at 0% for the last SEVEN years!
Sarah | 09.03.15 @ 17:05
I currently don't have anything with an interest rate, but will be sharing this with others so they're prepped.
Christina | 09.03.15 @ 17:05
It's too bad the housing market where I live is exploding, and I'm not in a position to buy a house just yet. :( Hoping the rates don't jump too high before I can!
Nancy | 09.03.15 @ 17:07
The comment about bringing back leisure suits made me chuckle. And cringe. But seriously, they've been talking about it for so long you almost wish they would just do it.
Carla Truett | 09.03.15 @ 17:07
We have done away with our credit cards because of the outrageous interest rates. It's nice to read that rising interest rates have a positive aspect.
gracie | 09.03.15 @ 17:08
We knew that interests rates could not stay so low forever. Hopefully this is the start of better economic times.
Britt | 09.03.15 @ 17:11
This is great information and lots of things I wasn't aware of!
Beverly | 09.03.15 @ 17:11
Rates have been low for a long, long time now and they can't stay there forever. I remember when the norm used to be 16-18% to borrow money for a house purchase, now we freak out over 6%. If only savings account interest rates could go up and lending rates could stay low.
Crystal | 09.03.15 @ 17:12
Great information if you're looking to finance.
Stokes | 09.03.15 @ 17:12
Great information and easy to understand as well.
Steffanie | 09.03.15 @ 17:13
I figured this would be happening soon.
Irene | 09.03.15 @ 17:13
I don't keep that close of a watch on interest rates, I have a couple of credit cards with good rates that I use and pretty much ignore the rest because the rates are too high.
Rindy | 09.03.15 @ 17:26
Hard to believe rising interest rates can be a good thing. Great information!
Heather | 09.03.15 @ 17:29
Great information. It's always great to be educated when it comes to your finances.
Meredith L | 09.03.15 @ 17:36
I'm about a year out from rebuilding my credit enough to get a mortgage loan, but the projected increase in interest is still a lot less than what I'm currently paying.
Sara | 09.03.15 @ 17:37
Great information to have. It's nice to hear that interest rates rising are not always a bad thing.
Daniel Dohlstrom | 09.03.15 @ 17:39
The more you know, the better off you are. Not all outlets would be as upfront about it - some make it seem like panic is the way to be right now.
Erin | 09.03.15 @ 17:43
I'm not interested in borrowing any large sums of money right now, but this is great information to have.
Jill | 09.03.15 @ 17:46
Good info for anyone looking to borrow money on a home!
Zanna | 09.03.15 @ 17:50
Cutting the credit card interest rate is a really good tip, especially if you're carrying a balance over and are trying to eliminate that.
Rychana Vingia | 09.03.15 @ 17:55
These are great tips. I wasn't aware some of these were possible.
Jo Ann | 09.03.15 @ 17:58
This information gives me a reason to get all my ducks so to speak in a row. Now is the time to refinance before the rates go up in the next year or so.
Steven | 09.03.15 @ 18:14
Hmm, good information to know since I grew up with people telling me interest rates are bad.
Wanda Langley | 09.03.15 @ 18:20
Good advice! The interest rates being low for a while has helped a lot of people buy homes that they could not pay the high interest rates for before they came down.
Donnie | 09.03.15 @ 18:39
The more information about the interest rates the better.
Kamie | 09.03.15 @ 18:57
I try to not follow interest rates, they are depressing most of the time.
Angie | 09.03.15 @ 19:09
I'm so pleased that the rates have been low enough that we've recently consolidated our credit card debt with a home equity loan. Much better rates! Of course, it'll be even better still, once it all gets paid off!
Elaine | 09.03.15 @ 19:12
I am so far away from having to deal with a mortgage interest rates. Hopefully by then the rates will be good again.
Kyle | 09.03.15 @ 19:15
This has a lot of great information and it's quite interesting how little I knew.
$commenter.renderDisplayableName() | 12.06.16 @ 22:05
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