What's good for savers not necessarily good for borrowers

Friday, December 15, 2017
 | 
Chris Woodward (OneNewsNow.com)

interest ratesA lot is being said about the Federal Reserve going through with its third interest rate hike of the year, but what does it mean for the average consumer?

According to USA Today, monthly payments on credit cards, adjustable-rate mortgages, and home equity lines are expected to increase after the Federal Reserve lifted its benchmark short-term interest rate Wednesday. All of those receiving loans have variable rates that go up or down based on the Fed's key rate, which is rising a quarter-percentage point.

"That's absolutely correct," American Enterprise Institute's Desmond Lachman tells OneNewsNow, "because most interest rates in the economy will key off what the Fed rate is. So if they begin to raise interest rates, then it does mean it's likely that credit card rates and other consumer interest rates will rise."

Meanwhile, savers who have been receiving practically no interest on their deposits or their certificate of deposit with banks can expect to get a quarter-point rise.

Lachman

"So if you're a borrower, it's not a good thing if any interest rates go up," Lachman explains. "But if you're sitting on a lot of savings – as many pensioners are – this means that you're now going to be getting some kind of return on those savings that you didn't have before."

All things considered, Lachman feels the interest rate hike was necessary.

"It wasn't unexpected," he adds. "Basically, what's happening is the economy is humming along better than expected. We've had really very good growth the last couple of quarters. The stock market is strong. Things are looking really very good. So the Fed is wanting to bring interest rates back to a more normal level."

More interest rate increases may occur in 2018.

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