4 Ways Higher Interest Rates Will Affect Your Pocketbook

The “lower for longer” mantra for interest rates looks like it’s finished for now.

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The “lower for longer” mantra for interest rates looks like it’s finished for now. In December, the Federal Reserve bumped up the rate it charges banks for overnight loans by 0.25 percentage point, to 0.75%. The hike in the federal funds rate was a long time coming after a quarter-point increase in December 2015, and it is only the second hike in more than a decade. But rate watchers are expecting at least two more increases in 2017, as the economy strengthens and the Fed tries to keep a lid on inflation. Longer-term rates have already soared, with yields on 10-year Treasury bonds up from 1.4% last summer to 2.5% recently. Kiplinger expects the 10-year Treasury yield to reach 3% by year-end.

Borrowers will feel the pinch of higher rates almost immediately. Some 92 million consumers will pay more to service all of their debt following the Fed’s December hike, according to credit bureau TransUnion. But the average increase will be just $6.45 a month. For nearly two-thirds of affected borrowers, a half-point rate increase would still amount to less than $10 a month in higher payments. On the flip side, savers will see some relief from rock-bottom earnings in coming months—but not much, and not for a while. Here’s how higher rates will affect your pocketbook:

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Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.