Interest makes a big difference in the money you earn and the money you owe. It is money that’s added to your starting balance and can be earned or paid and is typically expressed as a percentage.
While most people think about interest in terms of interest rates on loan products, it’s important to remember that you can also earn interest by keeping money in a bank account or other investments. When the Federal Reserve raises interest rates, it means that borrowing money becomes more expensive, but money in our savings accounts earns a higher rate of return.
A rising interest rate environment impacts consumers differently depending on whether they are a borrower or a saver.
We can see that increased interest rates reduce the amount of discretionary income borrowers have for purchases. But what if you’re a saver and have extra funds in the bank?
Savers who have funds in a savings account, money market, or share certificate (CD) can see a bump in their yields as interest rates increase. Different types of accounts will earn different yields depending on how the interest is calculated and the various stipulations of the accounts.
