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Interest Rates are Increasing!

Interest Rates are Increasing!

Interest rates are increasing! They are not increasing uniformly and they are not increasing for every account, but they are increasing! So, now is the time to “shop” for higher interest rates for your savings accounts, checking accounts and money market accounts. In general, the bigger the bank, the lower the consumer interest rate offered, so be sure to check local banks as well as national banks.

If you chose to move your money to earn a higher interest rate, remember to check on all the fees that will apply. Free checking is still available from local banks.

If you would like to understand why interest rates are increasing now, read on for Economics 101 on Quantitative Easing or QE for short.

During the financial crisis of 2008, the Federal Reserve Bank did many things to get the economy back on track. One of the biggest and most notable is known as QE. The Federal Reserve bought massive amounts of bonds. Banks, individuals, pension funds, insurance companies, investment firms, mutual funds and others who owned these bonds could sell them to the government and get cash for them. As a result, the government ended up with lots of bonds and everyone else ended up with lots of cash. Some people think that the Fed bailed out banks and gave them money but this is not what happened. The Fed bought securities owned by banks, individuals and investment firms at market prices. These were purchases, not gifts.

The result of these purchases was that banks had more money and fewer securities. This caused interest rates to fall dramatically which is supply and demand at work. More supply of money made the cost of money, the interest rate, lower. For a decade consumer interest rates were very low, zero or close to zero. This stimulated the economy, but hurt savers and people who lived on their interest checks. Now, ten years after the crisis, the Federal Reserve Bank is reversing Quantative Easing. They are doing this by allowing their securities and bonds to mature and at maturity, keeps the cash instead of reinvesting in more bonds. This means that whoever issued the bonds, whether it be the government, a state or a mortgage company, they must write a check to the Federal Reserve when the bond matures. This takes money out of the banking system.

The result is that the supply of money decreases and therefore, the price, the interest rate goes up. This is where we are now, the Federal Reserve is reversing Quantative Easing, the money supply is decreasing and interest rates are increasing. What this means for you is higher interest rates on your savings accounts, checking accounts and money market accounts. Now is the time to shop for a better interest rate. Also, be sure to check on fees. It is relatively easy to get a free checking account, but many consumers pay fees that are unnecessary because they did not shop for a better deal.

Quantative Easing is winding down and interest rates are winding up. Be sure that you benefit from this change by shopping for the best offering.

Article Posted On: March 13, 2019 - By: Sarah Barnett

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