Interest Rates are Rising – What This Means for Your Bank Account
First of all, when we say, “the Fed raised interest rates,” that’s a bit of a misnomer.


The Federal Reserve in mid-March announced that for the first time in three years, they’re moving interest rates up by a quarter of a percent (0.25%). It followed that up on May 4 with a half a percent bump (0.5%), the biggest increase in over two decades. While these moves were expected, they are still going to cause some changes to the financial landscape as we know it.
To gain an understanding of how rising interest rates may affect you personally, first you must understand what we mean when we talk about federal interest rates.
What do we mean by interest rates?
When we talk about the Fed, we’re referring to the federal government, specifically the Federal Reserve in this case. When you hear the phrase, “The Fed is raising rates,” what that really means is that the Federal Reserve is changing its target for the federal funds rate, which is the suggested rate that the FOMC (Federal Open Market Committee) uses. This rate, set by the FOMC, determines what commercial banks should charge when lending money to other banks. Banks then take their excess reserves and keep a percentage of them to cover deposits and lend the excess to one another in what is referred to as the overnight market. This isn’t a mandate that the banks do so, or a mandate of the exact rate they can charge, it’s just a suggestion, and what follows is a negotiation – but most banks follow these guidelines set forth by the FOMC and the federal funds rate.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What does the rate impact?
The federal funds rate impacts inflation. The federal government has a mandate to keep inflation within the 2%-3% range, or what they call stable prices. The government believes 2%-3% inflation is a healthy, steady amount of inflation, and when inflation is either higher or lower than this amount, the federal government may use either accommodative or restrictive monetary policies in order to move inflation back to within the target range. Adjusting the federal funds rate is often their first choice to manipulate the rate of inflation.
Lowering the federal funds rate is a tool the government has used when inflation is low, and the economy is in need of a boost. We’ve seen them use this to bolster the economy during recessions and during the start of the pandemic. In March, inflation hit 8.5%, and this is more than double the targeted range. Therefore, the federal government is moving to raise interest rates, which is a restrictive monetary policy to slow the circulation of money within the economy. With less money in circulation, it will discourage a sharp increase in prices.
How does the rise in rate impact you?
This rise in interest rates is somewhat expected, and we also expect the Fed to continue to raise interest rates during the remaining five meetings this year. While the current increases in 2022 have totaled 0.75%, with the added increases we may be looking at a 2% increase by year’s end.
This will affect your finances if you have anything in a variable rate vehicle, such as credit cards and variable rate loans, including car loans and adjustable-rate mortgages. If you can lock in a rate long-term, you may want to do that now, while rates are lower (relatively), instead of later, as they may go upadjust your timing.
Other possible effects of higher interest rates:
- We might expect to see that housing prices would cool.
- Bond yields will likely increase, and bond prices will likely fall.
- Generally, anything financial that is tied to an interest rate will be decently higher by the end of the year.
- Your savings account rates should also increase during this time frame, so you can get more interest on your savings account, particularly if you switch to an online-only bank with a higher interest rate.
Much of the market reaction that we’ve seen this part year, outside of the invasion of Ukraine, involved the repricing of interest rate expectations. The Fed has indicated that more interest rate increases are coming, so we can anticipate additional volatility. Investors need to remember that the market has ups and downs and that investing is a long-term strategy. This is where a financial adviser can help, because they can help investors counteract their own behavioral biases and avoid making snap decisions.
Working with a financial planner is always a good idea, as they can help you plan for what’s coming next in the markets, regardless of rising and falling interest rates.
Disclaimer
Please note, the information provided on this website is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. The content on this website is not intended to provide tax, legal or accounting advice, and you are advised to seek out qualified professionals that provide advice on these issues for your individual circumstances.
Disclaimer
Financial planning and Investment advisory services offered through Diversified, LLC. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Diversified, LLC are not affiliated companies.
Disclaimer
Diversified, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. Diversified only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Diversified’s current written disclosure brochure, which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. Diversified does not provide tax or legal advice and individuals should seek the advice of their own tax or legal advisers for specific information regarding their situations. Investments in securities involve risk, including the possible loss of principal. The information on this website is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
In March 2010, Andrew Rosen joined Diversified, bringing with him nine years of financial industry experience. As a financial planner, Andrew forges lifelong relationships with clients, coaching them through all stages of life. He has obtained his Series 6, 7 and 63, along with property/casualty and health/life insurance licenses. Andrew consistently delivers high-level, concierge service to all clients.
-
IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
An IRA conversion can give you a leg-up in retirement with tax-free income. But proceed with caution.
By Maurie Backman Published
-
2026 Social Security COLA Projection Dips After Inflation Slows
This October, the SSA will determine the new cost-of-living-adjustment (COLA) by comparing the CPI-W data from July, August, and September of 2025 to the same data from 2024.
By Donna LeValley Published
-
Alternative Investments Under Trump: What You Need to Know
As access to alternative markets opens up, retail investors looking to enhance their long-term financial outcomes have more opportunities to carefully consider.
By Henry Yoshida Published
-
Beware of TV/Billboard Personal Injury Law Firms: Here's Why
If you or someone you know is tempted to hire a so-called settlement mill to handle a personal injury case, here are some reasons to reconsider.
By H. Dennis Beaver, Esq. Published
-
How Small Businesses Can Clear the Economic Hurdles Ahead
Shifting rules on taxes, trade and regulation are creating uncertainty for SMBs. Owners can overcome that by focusing on efficiency, flexibility and investment.
By Mark Valentino Published
-
10 Tax Topics Every Retiree Should Know About
A little knowledge can go a long way toward saving on your tax bill. Print this out and take it to your tax planner so you can have a productive chat.
By Michael Miller Published
-
Facing a Layoff? Ask Your Employer These Questions Now
If you're being laid off or forced into early retirement, don't make any decisions without proper guidance — and that starts by asking some key questions.
By Ben Maxwell, ChFC®, AAMS® Published
-
Have $1M+ Saved? Consider a Financial Planning One-Stop Shop
A 'one-stop shop' team — including a financial planner, estate planning lawyer, CPA and more — could serve all of your tax, estate and retirement planning needs.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Five Ways to Safeguard Your Portfolio in Market Downturns
The stock market is nothing if not volatile these days. When it takes a dip, a well-managed, properly diversified portfolio could help you ride out the storm.
By Joel V. Russo, LUTCF Published
-
This Underused IRA Option Offers Tax Benefits and Income Security
Looking to avoid running out of money in retirement? Consider longevity protection provided by a QLAC as a component of your retirement income plan.
By Jerry Golden, Investment Adviser Representative Published