The Fed Raises Interest Rates: Smart Money Moves to Do Now

The Federal Reserve raised interest rates by 0.75% this week as policymakers move more aggressively to tackle inflation, which is at a 40-year high and is hitting U.S. consumers .

But experts say the rate hike, which is the biggest increase since 1994, could also impact personal finances in a variety of ways.

Here are some smart money moves to make now that could put you in a better position as rates rise:

Lock in your mortgage interest rate

Whether you’re getting ready to buy a home or already have a mortgage, make sure your interest rate is fixed and not adjustable.

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“It really makes sense to be aware because it looks like interest rates are going to be higher than what we’ve been used to for the last decade or more,” says Robert Gilliland, Managing Director and Senior Advisor in heritage at Concenture. Wealth management.

A home for sale on Oak Street in Patchogue, New York, on May 17, 2022. (Steve Pfost/Newsday RM via Getty Images/Getty Images)

“Interest rates are going to be higher, so [people] are going to have to be aware that it might be a good idea to revisit refinancing a mortgage,” Gilliland told FOX Business, noting that ARMs could go up “a lot” and that in some cases it might be prudent to refinance from of an ARM even if the fixed rates are higher than what an individual is currently paying.

“Manage your payments, it might be a good idea to lock in rates,” he says. “So would your home equity lines of credit.”

Pay off credit card debt and take steps to reduce interest paid on balances

If you have credit card debt, which is currently on the rise amid skyrocketing inflation, make sure you have a plan in place to pay it off, as interest rates will continue to rise.

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“With a credit card that has a balance, you want to be really, really serious about paying them off, because those interest rates are going to keep going up,” Gilliland says.

credit card

Plastic credit card fan is in woman’s hand. Bank favorable offers for consumers concept (iStock/iStock)

In the meantime, try either renegotiating the annual percentage rate applied to your balances or transferring that debt to a card with lower or no interest. He suggests checking out a site like NerdWallet to find the best deals on transferred balances.

Shop for higher yielding savings accounts

Gilliland says one positive thing about rising interest rates is that “Americans now have plenty of cash” and “their idle money is going to start earning a little bit more than it used to.” .

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Bankrate chief financial analyst Greg McBride agrees, telling FOX Business’ “Cavuto: Coast to Coast” that the upside of higher interest rates is that savers will benefit, and recommends people shop around to find the best rates.

“Returns have been so low for so long,” McBride told host Neil Cavuto. “Things took a turn in the sense that for much of the last three years it was a situation where savings yields fell and then inflation took off. We are now in a situation where , over the next year or two, we expect interest rates to rise and hopefully, eventually, inflation to fall.”

Reassess investment allocations

Gilliland recommends people meet with their financial adviser to assess investment allocations and ensure they have considered stress tests which predict a higher inflationary environment – ​​especially those planning to retire soon or who have retired within the last ten years.

When it comes to the stock market, Gilliland predicts “we’re going to be on a roller coaster ride” until there’s more clarity on inflation, interest rates and geopolitical events.

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His advice, given the current market volatility, is to stay diversified and “don’t try to catch a falling knife.”

FOX Business’ Talia Kaplan contributed to this report.

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