What The Fed’s Rate Increase Means To You

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What might exactly happen if the Federal Funds Rate is increased this year?

Strengthening of the dollar, decline in China, and a rate increase by the Federal Reserve are the headlines that are impacting the stock market currently.  These key market events are all intertwined.  The Fed looks at the overall economy when determining to increase the rate which just means that it costs more to borrow money.  You could see slightly higher loan payments and more volatility in the stock market.

See how the Fed’s rate increase will impact you.

The average five-year car loan, for $25,000, will carry a 4.85% interest rate by the end of 2016, adding $18 a month to the payment.  The interest rate on a typical 30-year mortgage will jump to 4.6%, from 3.9% now.

A car loan increasing $18 a month is not the end of the world.  That’s only $216 a year.  You have to remember while the cost to borrow money increases so does the money you keep in your bank.  The rate in your savings account also increases.  The important thing to keep in mind that during a rate hike stocks get extremely volatile as you might have noticed in the news recently. Historically it’s about a 25% decline in the few months around a rate hike then a recovery takes place netting out to about a 6% gain in the markets.

 

Learn exactly why the rate hike impacts your investments.


About Shaun Archer Tatum

Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.

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