What the Interest Rate Hike Means to DCs

What does the Fed's interest rate hike mean to you? It has an impact on loans. But it also gives you a good reason to take a look at your financial strategy.

Money & Credit

What the Interest Rate Hike Means to DCs

In mid-December, the Federal Reserve did what had long been expected – it raised rates.  Essentially this means it's more expensive for banks and credit unions to borrow money to lend to their customers.  As a result, the cost of borrowing money for everyone has gone up.

For the past several years, credit has been relatively difficult to get unless you had stellar credit.  Even then, small businesses had difficulty securing loans because the money simply wasn’t available for small dollar amounts.  With higher interest rates, banks are more willing to accept less than perfect credit, as well as broaden their lending portfolio, in order to meet their specific financial goals. 

So, if you have been looking at remodeling your office, purchasing your equipment or something else for your practice, now is a good time to investigate whether borrowing money is right for you.

Now is also a good time to evaluate any high cost, variable rate loans you may have.  The Fed is expected to continue raising rates throughout the year – although it is expected that rates will remain comparatively low.  Because variable rates shift with the bank’s cost of borrowing funds, your variable rate loan will likely increase. 

But options are available to  mitigate your risk.  Possibilities include paying off the loan or renegotiating for a fixed-rate loan.  Some banks will also do a combination of these types of instruments.

As interest rates increase, it is also a good time to put available cash to work, whether it be in savings accounts, certificates of deposit (CD) or money market accounts.  Tucking the cash away for a rainy day will be more rewarding than it has for the past decade.

While interest rates did increase in December, the cost of borrowing remains at historic lows. While rates have been near zeros and will in all likelihood edge up over the next 12 months, it’s a good time to evaluate your financial strategies.

And don’t forget your financial advisor and an accountant are great resources which I would recommend you utilize.

Happy days!

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