The Federal Reserve has been raising interest rates aggressively to combat soaring inflation. But the rate hikes are causing a lot of concern in financial markets and for average Americans.
The Fed has a dual mandate to maximize employment and keep prices stable. When the economy is growing too quickly, it can cause inflation to rise. To combat inflation, the Federal Reserve raises its target federal funds rate. The goal is to make it more expensive for businesses to borrow money, which should cause them to slow or stop spending. It can also push up the cost of consumer debt.
Generally, when the Fed raises interest rates, it is good for savers. That’s because savings tools, like checking or savings accounts, pay a higher return on deposits when rates are higher. The more you put in your bank account, the more money you’ll earn, and the faster it will grow.
But not all savings tools are created equal. The best options will pay you the highest returns, with some paying up to 3% or more!
When the Federal Reserve raises interest rates, it can affect your credit scores. That’s because most auto loans and student loans have fixed interest rates. But mortgages and most credit cards issued in recent decades have variable interest rates based on an index plus a margin. Knowing how interest rates change can help you prepare for the future and stay on top of your payments.
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