I’d like to talk a little about interest rates in this article. As you are all painfully aware, interest rates are on the rise. Interest rates are the expense associated with borrowing money. When interest rates are low, borrowing and the associated spending by consumers and businesses increase. When demand for products and services exceed supply, prices rise. The measure of these rising prices is called inflation. A little inflation is good. When prices are going up, people want to buy now rather than pay more later. This increases demand, resulting in business expansion and higher employment. Too much inflation, however, can be disastrous. The current inflation rate in the US is 8.3% and it has been above 6.0% for the past year.
The Federal Reserve has set the official inflation target at 2.0%, and because we’ve been above that figure since the beginning of 2021, they have been raising short term rates this year. The Fed sets the federal fund’s rate, which is the interest rate at which banks borrow from and lend to one another overnight. The prime rate, the one we hear the most about, is not determined by the Fed, but instead by individual banks. The prime rate is typically set 3.0% above the federal fund’s rate. Today, the prime interest is 6.25%, which is the highest it’s been since 2008.
I know that’s a lot of technical mumbo jumbo, but I think it’s important to understand why rates change and how they can affect us in our daily lives. The Fed is trying to slow the economy and lower inflation by raising interest rates. This means borrowed money costs more, so consumers and businesses will cut back on spending. Mortgage rates are not controlled by short-term interest rates, but rather are influenced by inflation. Mortgage rates are also rising in response to inflation.
All of these changes make life a little harder for borrowers, but these higher rates are a welcomed relief for savers. Ever since the great recession of 2008-09, savings rates in the US have been at or near 0%. The stock market has performed well over the past decade, but individuals looking for safe, insured investments have been left with few options for earning a return. The stock market has taken a hit this year, losing over 7,000 points since January. Due to higher interest rates, individuals and businesses now have a safe, secure place to put their money during these uncertain times. Short-term certificate and money market rates have increased significantly this year, so now might be the time to get off the stock market roller coaster.
Here at Wasatch Peaks, we offer highly competitive savings rates, whether you’re looking for money market, certificate of deposit, IRA, or even HSA accounts. We also have our Peaks Perks checking accounts which offer high dividend and cash back options. We have specialized accounts for our business members as well. All of these accounts are insured by the NCUA up to $250,000…something you can’t get from the NYSE.
Whatever your needs are, let us know how we can help. Remember…we are all in this together.