What Rising Interest Rates Mean For You
You’ve probably seen news about the Federal Reserve raising the prime rate, which trickles down to the interest rates charged and paid by banks, credit card companies and others. But what does this really mean for you or for your business?
First, some perspective: Rates are still historically very low. But even when rates rise, the news isn’t all bad. With preparation and planning, you can find positives and reduce the impact.
Budget for increased interest if you buy on credit.
Interest is a business expense. If you buy inventory or materials on credit and then pay that off with your income, any rate increase means that those purchases would essentially cost more – a price you have to pass along or make up elsewhere. Time to sharpen your pencils and take a close look at your budget and balance sheet – same goes for your household if you buy a lot on credit.
Reduce effects on customers who buy with credit.
Do what you can to lessen the burden. Some businesses rely on credit to help their customers afford purchases, especially for big-ticket items. Help offset the increased price, locate more generous credit providers or offer deals to motivate purchase.
Consider moving assets to interest-bearing accounts.
Don’t lose sight of the flip side of rising interest rates. Savings accounts, certificates of deposit and other interest-bearing financial products pay more with higher rates. If you’ve been stashing cash in bonds that are locked in at lower, older rates, or in safe low-yield equities, you may get a better return elsewhere – talk to your banker or financial planner.
Borrow before rates rise further if a major purchase is needed.
The important part there is “needed” – don’t borrow just because you can. But if you need to make a big purchase on credit either today or six months from now, all else being equal, doing so today with a fixed-rate loan assures you of a low rate. There’s a good chance rates will rise, bumping up interest on adjustable-rate loans and increasing the cost of future borrowing.
Remember, rates go up for a reason – usually to head off inflation and the inflated raw material costs, wages and other increased expenses. Through that lens, higher interest is a natural part of the business cycle. With the support of your banker, you can enjoy the positives of higher rates while protecting yourself and your business.