Connect with us

Hi, what are you looking for?

Finance

What Do Rising Interest Rates Really Mean?

What Do Increased Interest Rates Really Mean?
How and why did the Federal Reserve raise interest rates, and what are the repercussions?

The cost of living is continuing to rise, and with that comes a slew of repercussions. Millennials, in particular, are dealing with that rise while paying off student loans. This leads to not buying property, not getting married, not having children as well as other life events that cost a significant amount of money. As long as wages are not being raised to meet the cost of living, consumers are using credit more and more. The average rates for credit cards, among various loans, all have risen since July. Unfortunately, users of credit cards have not yet felt the repercussions of rising interest rates.

What are interest rates and why are they rising?

An interest rate is a percent of principal that the person or institution charges when you borrow money. The reason they are currently rising is due to the Federal Reserve. A decision was made by the Federal Reserve to raise the amount of short-term interest. When the rates are lowered, it’s a way of getting consumers to borrow money and pay interest when rates are made higher, it is to achieve the opposite. When the Federal Reserve raises rates, it also can be to give banks an incentive to lend less money.

The issue

With rising interest rates comes more money owed back to lenders. For example, the variable rate on credit cards is around 17.31 percent, and in June it was 17 percent, which can be a problem when the cost of literally everything is increasing. However, it will take a while to notice the increase in this rate. Eventually, though, the monthly rate will start to be felt by American wallets.

However, if you are able to save and invest, the rise might be a good thing for you. As banking interest rates increase, it means your rate of return will go up. A rate of return is an extra gain on an investment or savings account over a period of time. It pays (literally) to save.

Takeaway

As the Federal Reserve is raising interest rates, we will slowly see it affect our bank accounts. While it will take a while to notice, credit should be used with caution and the knowledge of the increased rates. Blind spending or overspending on credit can lead to significant trouble if a user does not foresee the rising interest rate. Luckily, if you are able to save and invest, you might actually make money with your rate of return. This just shows how being financially educated can benefit you.

Have something to add to this story? Comment below or join the discussion on Facebook.

Header image: Shutterstock 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like

Business

What is the gap between culture and technology? According to Damas, entertainers have passions that brands and companies may not be aware of, and...

Entrepreneurship

And the winner is (drumroll please): Holland, Michigan! Never heard of it? Well, it’s a four-hour drive from Milwaukee, and it is populated by...

2016 president election

In a political climate dominated by a two-party system, Libertarians are constantly confused as off-brand Republicans. Although the two groups sometimes align on issues,...

Personal Finance

Millennials’ love of pets is so strong that it’s affecting their housing decisions. Young Americans are less likely to be parents, own a house...

Copyright © 2020 GenBiz.