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What do rising interest rates mean to YOU?

Are you a saver? A borrower? An investor? Perhaps each of these categories represents a fragment of your financial life. It is not new news that interest rates are expected to rise; it has been a topic of discussion and concern for financial professionals nationwide. Rates may not rise tomorrow, but they certainly will not stay low forever. What do rising interest rates mean for you as a saver, a borrower, and an investor?

The Saver

The Saver in you has likely been cringing at the renewal rates of your CDs these past few years. If interest rates rise in the future, you can expect CD rates to follow suit. Higher interest rates should benefit the Saver.
Be very cautious when considering locking up your money in longer-term savings products. These products may make it much more difficult to take advantage of rising rates, especially if there is an early withdrawal penalty involved. It is important for you to understand all aspects and limitations of these savings vehicles before making a long-term commitment.

The Borrower

The Borrower in you has seen great opportunity in this low interest rate environment. If you have been in the market for a loan, whether it be refinancing your mortgage or securing a personal or auto loan, rates have never been more favorable for the Borrower. Locking in long-term debt at today’s interest rates will bode well for the Borrower if and when interest rates rise. Fixed, long-term debt protects the Borrower from not only rising interest rates, but also from inflation. As food, utility, and housing costs rise with inflation, your 30-year fixed mortgage payment will remain constant.
Although variable rate loans may provide a lower initial rate, be sure to consider factors such as, “How long will it take me to pay off this debt?”, “By how much can the lender increase my interest rate, and under what conditions can the rate be increased?”, and “Can I afford this loan if interest rates rise over the next few years?”

The Investor

The Investor in you may be concerned about what interest rates mean for your portfolio. Bonds are an effective diversifier, helping to reduce overall volatility in a portfolio. However, when interest rates rise, the market value of bonds typically falls. This interest rate risk associated with bonds has the Investor a bit worried, but bonds may still play an important role in diversifying your portfolio, and your financial advisor can offer suggestions to mitigate this risk, such as diversification, shortening duration, and/or incorporating alternative fixed income investments.

Ali Bach, Certified Financial Planner©
Conte Wealth Advisors

Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors are not affiliated. 2009 Market Street, Camp Hill, PA 17011.