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Interest Rates to Increase in 2019

The Federal Reserve recently increased interest rates by a quarter point and it seems that the rate hike is set to increase even further by all accounts, possibly three more times in 2019.

While this increase will have positive effects on savings (earning higher interest), borrowers will also feel the effects of the higher interest when it comes to their debt payments.

Let’s take a closer look at both sides of how these interest rates could affect consumers:

Savings

Higher interest rates mean better returns on your savings. That’s easy to see. But it depends on the institution with whom you are banking. Online banks tend to offer higher returns than brick-and-mortar competitors. That’s because of the lower overhead, so they can afford to pay out larger returns on savings accounts.

Credit cards

Unfortunately, living under the shadow of debt is a way of life for most Americans. Overall, U.S. household debt has increased by 11% in the past decade and today, the average household with credit card debt has balances totaling $16,425. The average household with any kind of debt owes $135,924, including mortgages.

In an environment where rates are changing, consumers need to keep a close eye on their interest rates. Your credit card company may have raised your rates, but now might be the best time to shop around, and find another company that hasn’t made as drastic a change to their rates.

Other loans

Auto loans and mortgages are similarly affected by the rate increases. Although probably not as much as credit card rates. However, this all comes down to your credit score. If you’re in the unfortunate position of having a subprime credit score, you’re going to feel the brunt of the cost for a loan.

In terms of mortgages, most people have a fixed-rate mortgage, so there won’t be a sudden hike in their rates. The people it will affect the most is future borrowers.

Student loans may also be affected, depending on the type of loan you have. Currently, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone. The average student in the Class of 2016 has $37,172 in student loan debt.                                                                                             

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

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