3 Ways Rising Interest Rates May Affect Your Personal Finances

Article originally published on June 21, 2022 and updated on September 26, 2022.

To fight inflation, the Federal Reserve raised interest rates by three-quarters of a percentage point on September 21 and signaled its intention for future increases to achieve price stability. This will impact rates for consumer borrowing and spending — making it important to understand the implications for your mortgage, credit cards and savings accounts.

Robert Spendlove, Senior Economist for Zions Bank, shares his insights on what rising interest rates mean for consumers.

Rising interest rate consideration #2: Credit cards

Because interest rates on credit cards are usually not fixed, they’re particularly susceptible to changes in the federal funds rate. If you’re carrying credit card debt, higher interest rates will likely cause your minimum payment to rise — making it harder to pay off your debt.

“Consumers with credit card debt should consider strategies to offset rising interest rates,” says Spendlove. “If you have good credit, you could consider a credit card balance transfer. And regardless of where rates are, it’s wise to reduce your credit card debt whenever possible.”

Rising interest rate consideration #3: Savings accounts

Higher interest rates are welcome news for people who like to save. Although there isn’t a direct link between the federal funds rate and deposit rates, financial institutions generally increase the annual percentage yield that is paid for money market accounts, savings accounts and certificates of deposit. As the federal funds rate increases, you should anticipate your bank will raise rates to attract deposits.

“If you have extra cash on hand, rising interest rates create opportunities for you to leverage,” says Spendlove. “If you’ve paid off debt and don’t need access to cash right away, you may benefit from depositing funds in a certificate of deposit. You’ll receive the benefits of a fixed interest rate, compounded daily — meaning you’ll receive interest calculated on your initial deposit and accumulated interest.”

Rising interest rates make it critical to manage your financial obligations

It’s important to be aware of how rising interest rates will affect your personal finances. Our debt calculator can help you determine how much you owe, how much interest you’re scheduled to pay and how long it will take to pay off.

By calculating how rising interest rates will affect your personal finances, it will be easier to make a plan that will save you money over the life of your loans. Making financial decisions with rising interest rates in mind can help position you for financial success.