How to Benefit From Rising Interest Rates

By Rachel Slifka on 21 March 2018 0 comments

Interest rates went up three times in 2017, and they are under consideration to be increased yet again within the next couple of months. As interest rates continue to rise, what does that mean for you as a borrower?

While rising interest rates means it costs more for you to borrow, it also can work in your favor. Here are a few examples of how The Federal Reserve hikes can benefit you financially.

1. Throw more into savings

Savings accounts and certificates of deposit have been at historically low interest rates in the past few years. While a hike in federal interest rates won't make you rich, it can give you a slight boost in your savings power, for no extra work. (See also: Best Online Savings Accounts)

As interest rates increase, now is a great time to start socking extra money away into savings accounts and CDs. While putting extra money into savings might not result in as much interest earned from other saving avenues, such as retirement accounts or other investments, you can use the higher interest rates as an incentive to boost your savings or emergency fund contributions.

2. Take advantage of still low interest rates

During the financial crisis of 2007, the credit bubble burst, causing lending to come to a near halt. The Federal Reserve drove interest rates to the floor, and eventually pulled lenders back from the brink.

Higher interest rates today may make it more expensive for borrowers than over the past several years, but rates are still near historic lows. While it's important to use caution when borrowing money, now might be the time to strike if you've been on the fence about making a big purchase, such as buying a home.

3. Get more bang for your buck abroad

Traveling abroad can be expensive enough in its own right. But as federal interest rates rise, it could very likely strengthen the U.S. dollar.

A stronger dollar means Americans can travel abroad and get a better exchange rate than usual. Thanks to exchange rates working in your favor, you can splurge a little bit more (or save more) than you had maybe originally budgeted for.

4. Pay off consumer debt

The interest rates on your debt will rise if the Fed continues to increase rates. This means you will be required to pay even more interest on your debt, owing more money overall.

You can lessen the blow by prioritizing your debt repayment now. The sooner you pay off debt at a lower interest rate, the more money you will save. Use the threat of increasing rates to get your debt paid off as soon as possible.

Credit card debt is especially susceptible to climbing interest rates. Credit card debt has its own high interest rate, so any additional increase from the Federal Reserve will only cost you more. Avoid paying extra interest by prioritizing debt repayment today. (See also: The Fastest Method to Eliminate Credit Card Debt)

5. Consider refinancing

If you've been considering refinancing your home or auto loan, you may want to do it before the Fed considers another increase. In addition, if you bought your home at a higher interest rate and have not yet considered refinancing, you may not be getting the best deal available.

Even if federal interest rates don't change again, you may still find it advantageous to refinance your mortgage or auto loan to a better rate. (See also: 4 Smart Ways to Lower Your Monthly Mortgage Payment)

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How to Benefit From Rising Interest Rates

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