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Rising rates mean 2% interest on savings could be ‘new normal’

With three more Fed hikes predicted in 2018, experts recommend you play defense by shopping for the best rates on debt and deposits.

Outgoing Federal Reserve Chair Janet Yellen has suggested

Outgoing Federal Reserve Chair Janet Yellen has suggested the Fed will continue to raise rates gradually. Photo Credit: Getty Images / Alex Wong

What goes up can go up more. The Federal Reserve raised interest rates three times in 2017 and is likely to do a repeat in 2018.

According to chief financial analyst Greg McBride, “There will be three more Fed rate hikes. This will take the Fed fund’s current 1.25-1.5 percent rate level to 2 percent, then 2.25 percent by the end of 2018.”

What do rising rates mean for you?

  • The upside: “Short-term rates will go up, so certificates of deposit and annuities will have higher rates by year-end,” says Joel Salomon of SaLaurMor Management in Manhattan. “Any asset sensitive/interest sensitive stocks will outperform [the broader market]. Fixed-rate mortgages will be comparatively cheaper vs. adjustable rate mortgages.”

If the Fed continues to raise rates, a 2 percent return on your money sitting in a bank account could be the new normal, predicts Kimberly Palmer, a banking and credit expert with

  • The downside: Lenders are likely to charge more for all loans, says Salomon. Know too, that “long-term bonds are in more jeopardy as the Fed raises rates. They are more unstable in a rising interest-rate environment,” says Michael Kresh, chief investment officer with Creative Wealth Strategies in Islandia.

So what should you do? Play defense.

“Comparison-shop for the best loans and deposit rates, not only on new borrowing and saving,” says Tendayi Kapfidze, chief economist at Lending Tree in Manhattan. “Existing loans could be consolidated or refinanced at better rates” and current savings could be moved to an account paying more interest.

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