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How interest rate increases and decreases affect finances

Changes in interest rates can have a direct impact on daily spending, loan payments and more.

Interest Rate

There are countless things that affect the money that you save and pay toward loans. One of the biggest, of course, is an increase or decrease in an interest rate. For consumers, a change in this key financial indicator can affect their loan payments and availability, savings accounts, credit card payments and overall spending.

In general, an interest rate decrease is good for consumers when it comes to obtaining loans. The interest rate people pay goes down, and the amount they’re able to borrow goes up. People may have more flexibility refinancing higher-interest mortgages as well. Unfortunately, the reverse is true: When there is an interest rate increase, access to credit becomes more difficult.

Traditional savings accounts are more negatively impacted by lower interest rates, which causes many people to move their money to higher-yield accounts.

When it comes to credit cards and spending, lower interest rates tend to be good for consumers. Variable credit card rates will decline along with a decline in interest rates (although there may be a month or two delay), and lower interest rates also typically free up more disposable income as fewer dollars are committed to paying interest.

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