Interest rates are expected to increase this year in response to inflation that is running at a 40-year high. How will you be affected?

Any interest rate revision can cause a ripple effect throughout the economy. Accordingly, the Federal Reserve’s actions probably will exert at least a moderate influence over financial choices that you may make at home and in your business in 2022 and beyond.

Savings and debt

As a consumer, you stand to gain from rising interest rates because you’ll likely earn a better return on your deposits. Over the last ten years, placing your money in a certificate of deposit or passbook savings account has been hardly more profitable than stuffing it under a mattress. On the other hand, the cost of borrowing money will likely increase. As a result, mortgages, car loans, and credit cards will demand higher interest rates. That’s not a big deal if you’re already locked into low-interest fixed-rate loans. But if you have a variable rate loan or carry balances on your credit cards, you may find your monthly payments starting to increase.

Investments

On the investment front, market volatility may increase because rate increases are not completely predictable. Market sectors will likely exhibit varied responses to changes in interest rates. Those sectors that are less dependent on discretionary income may be less affected – after all, you need to buy gas, clothes, and groceries regardless of changes in interest rates.

As you adjust your financial plan, you might only need to make minor changes. Staying the course with a well-diversified retirement portfolio is still a prudent strategy. However, you may want to review your investment allocations.

Your Business

Rising interest rates can also affect your business. If your company’s balance sheet has variable-rate debt, rising interest rates can affect your bottom line and possibly your plans for growth. As the cost of borrowing increases, taking out loans for new equipment or financing expansion with credit may become less desirable.

Please call if you have questions about deciding on the most beneficial response to potential future changes in interest rates.

Financial Services for Real People

Founded for the benefit of clients, Echelon Financial is an independent Austin-based firm with a deep commitment to providing guidance that is free of conflicts of interest, based solely on the sum of our experience and expertise. We are committed to putting client interests first and to stewarding both wealth and wellbeing for those we serve. We have a singular measure of success: the results we get for our clients.

As a Registered Investment Advisor, we have a fiduciary duty to act in YOUR best interest. From planning to investment management to advice on buying a car, we are your financial life partners.

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