Potential of Rising Interest Rates, and the Influence on Personal Finances

The question is no longer if interest rates will rise, the question is when. Here's a look at some of the impacts you can expect once the inevitable happens.

Since the recession in 2008/2009, the Fed Funds Rate, which is the driving force behind interest rates in the US has been targeted to be at 0.00-0.25. With the quantitative easing and bond buying now over and the economy relatively in good shape after an outstanding recovery in the US stock market, improvement in joblessness, and stability gained in the housing market, the common thought is it is now not a matter if rates will go up. The question now is when the historically low base interest rates will be allowed to start to climb. The answer is not 100% clear. The Fed has said they will be patient this year, but reading between the lines it is likely that this increase in rates (predicted to be a hopeful gradual incline) will start to take place in 2015.

To put the current target rate of 0.00-0.25 in perspective, the rate in 1990 was at 8.25 and the average target rate since 1990 is 4.7%.

So how can this affect one’s financial strategy? On the positive side, as rates go up, we may start seeing a little higher yield on the money sitting in our bank accounts. The higher rates may also start to help money markets and CDs keep up with inflation or at least give more reward for that idle money. Additionally, there is potential for the bond and fixed income market to have some more enticing opportunities.

On the negative side of the equation, home ownership may get more expensive with higher interest rates and more interest being charged on a monthly basis. So generally speaking, this may make the case for buying a home sooner than later if it is inevitable that higher rates are going to happen. The rise in rates may also diminish the opportunity for refinancing student loans with private banks and refinancing mortgage rates.

Overall, a rise in interest rates can impact a financial strategy in both positive and negative ways, but one thing moving forward that is as close to certain as it gets in the financial world is that it will be happening. The next Fed meeting is on March 18 and signs point to rates not being tinkered with at that time. After that, it would appear it’s anyone’s guess.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. but is independently owned and operated. Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as tax, specific loan repayment for an individual or legal advice. This is not a recommendation of any strategy or product in particular. 1119088/DOFU 2-2015