By: Jennifer Brazer
Jennifer is the author of From Cubicle to Cloud and Founder/CEO of Complete Controller, a pioneering financial services firm that helps entrepreneurs break free of traditional constraints and scale their businesses to new heights.
Fact Checked By: Brittany McMillen
9 Things to Watch When Interest Rates Go Up
When interest rates rise, it doesn’t just make the news—it sends ripples through nearly every corner of your financial world. Whether you’re an aspiring homeowner, a savvy investor, or carrying a fair amount of debt, recognizing these shifts and their implications is crucial. Over my two decades as founder and CEO of Complete Controller, I’ve seen how rising rates impact individuals and business owners alike. Understanding these dynamics is the key to adapting, planning, and thriving.
Here are nine critical areas where rising interest rates can touch your finances—and the strategies you need to navigate them successfully.
Mortgage Rates and the Cost of Homebuying
Higher interest rates are often a game-changer in the housing market. Here’s the challenge: when the Federal Reserve raises benchmark rates, mortgage lenders follow suit. This makes borrowing more expensive. Suddenly, the dream of owning a $400,000 home turns into hefty monthly payments, pricing many buyers out of the market.
A prime example is the 2022 housing market cooldown. Buyers who once had their sights set high had to temper their expectations or pause entirely. Home sales slowed, and sellers had to rethink their price tags. Worse, homeowners with low fixed-rate loans became reluctant to refinance, further diminishing housing inventory.
Pro Tip: If you’re in the market for a new home, start the process now. Locking in your mortgage rate before another hike could save you thousands over the life of the loan. Curious about the trends? Check out the impact of changing mortgage interest rates.
Credit Cards and Loan Payments
If you’re carrying credit card debt, rising rates spell trouble. Most cards come with variable rates, meaning when the Federal Reserve raises benchmark rates, your credit card company likely raises its rates, too. Suddenly, servicing debt becomes costlier—a few more percent on your annual percentage rate (APR) might not sound like much, but it stacks up over time.
This also applies to loans with adjustable rates, like some car loans and personal loans. Even minimal rate hikes can mean paying hundreds—or thousands—more over the life of the loan.
Action Steps:
- Prioritize paying off high-interest balances immediately, especially credit cards.
- Explore options like balance transfers or consolidating debt into fixed-rate loans to avoid surprises.
- Finally, learn how to manage your credit responsibly to stay ahead of the curve.
Savings Accounts: A Silver Lining
Good news for savers: rising rates benefit savings accounts, CDs (certificates of deposit), and other fixed-income investments. For years, savers lamented earning next to nothing on their emergency funds stashed in the bank. Now, high-yield savings accounts are back in vogue, offering more rewarding returns.
If you’ve been letting your money linger in a checking account, it’s time to move it—every percentage point matters. A high-yield savings account can help you make the most of the current climate while keeping your funds accessible for emergencies.
Reminder: Higher rates make fixed-income vehicles like CDs more attractive, though it’s worth keeping an eye on inflation so your gains don’t lose value in real terms.
Investor Confidence and Portfolio Shifts
When rates rise, the financial markets respond—and not always kindly. Companies reliant on cheap borrowing to fund growth often see their stock prices decline. Certain sectors, like tech and utilities, may take a hit, while others, such as banks and financials, may thrive.
As an investor myself, I’ve always emphasized diversification. Don’t let your portfolio lean too heavily into one sector tied to low-rate environments. Think about rebalancing now by considering short-term bonds, dividend-paying stocks, or sectors historically resilient to rising rates, including energy and financials.
Learn More: For insights into navigating economic uncertainty, check out our strategies for efficient business finance management.
Consumer Behavior: Spending vs. Saving
Rising interest rates don’t just change costs—they change behaviors. With borrowing becoming more expensive, consumers often scale back on discretionary spending. Splurging on that dream vacation or latest gadget might take a backseat. Instead, people tend to value saving more, thanks to higher yields on safe assets like savings accounts.
On the flip side, this shift in behavior can have broader economic implications. Retailers, tourism operators, and manufacturers often see cutbacks in demand during high-rate environments. It’s a domino effect that affects employers, job creation, and ultimately the GDP.
The upside? Being disciplined about saving when rates rise can set you up for success during tougher times.
The Tug-of-War Between Interest Rates and Inflation
Let me simplify this: when inflation goes up, the Federal Reserve raises interest rates to slow things down. It’s like tapping the brakes on an overheated economy to give it room to stabilize. On average, it takes about six months for adjustments in interest rates to significantly impact inflation trends.
This process isn’t perfect. If rates rise too fast or too high, they can stall economic growth, potentially pushing the economy into a recession. Balance is everything, and as citizens, it’s crucial we monitor how these two forces—interest rates and inflation—work together.
Did You Know? The US policy rate peaked at 22% back in December 1980. Imagine buying a home or starting a business in that climate!
Economic Ripple Effects
The effects on financial markets run deep. Industries that rely on heavy borrowing—like real estate development or tech startups—tighten their belts. Meanwhile, financial giants like banks and insurance companies find themselves in profitable territory as yield spreads widen.
If you’re an entrepreneur, rising interest rates can be an expensive hurdle. Think twice about taking on new debt and aim to streamline operations wherever possible. For more on navigating these challenges, explore our best strategies for preparing for rising interest rates.
Preparing for Change: Your Financial Game Plan
Preparation is key. Here’s how you stay ahead:
- Build or beef up your emergency fund. High-interest credit cards are a terrible fallback plan when cash flow is tight.
- Consolidate debt into fixed-rate loans before rates climb further.
- Meet with a financial advisor to assess your portfolio and rebalance strategically.
- Save aggressively now that rates on high-yield savings accounts are climbing.
Remember, being proactive doesn’t just save money—it buys peace of mind.
Lessons from the Past: Real-World Case Studies
Post-2008, interest rates were kept historically low to foster economic recovery after the financial crisis. However, as the economy regained stability, rates began to rise, forcing many to revisit their strategies for borrowing, saving, and investing.
A more recent case is the 2022 housing market slowdown. Sellers who once saw bidding wars had to adjust expectations as mortgages jumped past 7%. Buyers, meanwhile, faced fewer options and steeper costs. Understanding history equips us with better tools to address the challenges of tomorrow.
Conclusion
Rising interest rates can feel like financial turbulence, but with preparation and perspective, you don’t have to sit back and watch your finances take a hit. From paying off debt to maximizing savings, smarter choices today lead to brighter tomorrows.
If you’re feeling uncertain about how rising rates will impact your finances, Complete Controller is here to help you navigate the changes with personalized, expert guidance. Start today—because financial peace of mind is within your grasp.
FAQ
How do rising interest rates affect mortgage rates?
When interest rates rise, mortgage rates typically increase, making home loans more expensive.
What happens to credit card debt when rates go up?
Most credit cards have variable rates, so your interest charges increase, making unpaid balances costlier.
Do rising rates help savings accounts?
Yes, savers benefit from higher yields on savings accounts and CDs, providing better returns.
What investment strategies work during rising rates?
Focus on short-term bonds, dividend-paying stocks, and rate-benefiting sectors like financials.
How can I prepare for rising interest rates?
Pay off high-interest debt, build your emergency fund, and reassess investments with an advisor.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
