How Does Fed Rate Rise Affect You?

How does an interest rate rise affect your personal finances? For savers, an interest rate rise is positive news as it means they will receive higher interests on their deposits

Karen Kwok 17 December, 2015 | 10:38AM
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UK savers have suffered record low interest rates of 0.5% since March 2009. But after seven long years, yesterday the Federal Reserve, the American central bank, announced they would be raising interest rates and the Bank of England is expected to be next.

Are You Prepared for Rates to Rise?

How does an interest rate rise affect your personal finances? For savers, an interest rate rise is positive news as it means they will receive higher interests on their deposits.

Pensioners, who typically have a nest egg in cash savings, and little debt will particularly benefit.

But the rate change could also bump up interest charges on credit cards, car loans and mortgages, making them more expensive for borrowers. Mortgage borrowers may need to cut discretionary spending in order to pay for a debt that costs them more, which may have a detrimental effect on the economy. First time homebuyers will have to prepare for higher borrowing costs.

The economic barometer supports a rate rise in the UK – wage inflation is under pressure, unemployment is falling and house prices keep rising. The UK economy is recovering from the global recession.

The next debate coming forth is how fast and how far the interest rate will continue to rise after the first increase. Experts suggest it will be a slow and gradual move.

We talk to people in London to find out how the Fed raising rates affects the public’s personal finance plans – and what base interest rate would they like to see.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk