During the December 14, 2016 Federal Reserve Board meeting, the committee voted for a 0.25 percent increase in the federal funds interest rate, raising the rate to 0.75 percent. The increase is made second time in a decade. The first increase of 0.25 percent was made on December 2015, which Janet Yellen, the Chairperson of Federal Reserve Board, positioned as a vote for boosting the U.S economy.
The Federal Reserve is the central banking system of the U.S and all the giant banks have placed their funds there. The Fed’s pronouncement of a high-interest rate set how much interest banks can charge each other to borrow money and to meet the Federal Reserve requirements. To guide the heads of the household, credit card holders, shoppers and investors, Nerd Wallet’s in-house experts answered to the most important questions coming from all.
1. How will rate hike affect my retirement savings?
The effect of high-interest rate will depend on individual’s current portfolio and his or her future plans for the savings. You may feel affected if you have a mortgage burden or a huge balance on your credit card.
2. Do I need to re-plan my investment strategy?
According to Nerd Wallet’s this year savings survey, 17 percent of Americans said that their main source of financial stress is the volatile stock market. Hold on! Don’t make any sudden move, just keep an eye on the things which are under your control. Some other suggestions for you:
- Reconsider your original investment strategy
- Check your asset allocation
- Consider your short-term savings because it will protect you in future.
- Stay updated with the volatile stock market. Make the most of it when the market takes a big hit.
3. Do rate hike will impact my savings account?
Yes, your savings account rates might go up, but an increase wouldn’t be made overnight and would be insignificant. Banks may not respond to rate hike because they have a fear of losing their customers when the other financial institutions haven’t responded to the high rate.
4. Will the new rate affect my certificates of deposit?
Certificates of deposit (CDs) is the important tool for those who want to grow their balance over a specified time period. CDs will be impacted in the same way as your savings account. However, more CDs are coming up with a fixed markup rate, so if your banks raise the rates, the annual percentage yields on your CDs won’t change.
5. Is my credit card interest rate going up?
Typically, credit card rates rise or fall with the prime lending rate, which is directly related to Fed’s action. Card issuers usually take 45 days’ time period to notify consumers of the increase APR. It is important to check your credit card statements regularly to keep an on eye on the increased APRs
6. How rate hike will affect my mortgage?
The Nerd Wallet Mortgage Rate Index reported that the 30 years fixed mortgage rate rose in the fourth week following the presidential elections 2016, by (0.50%) more than half a point.
- if you own a fixed mortgage rate, you are safe.
- if you have flexible mortgage rates, your payments are likely to increase next year.
7. How will rate hike affect my home shopping?
Your buying power may be affected by increased interest rates. The rate hike effect can be offset by good employment opportunities and increased wages.
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