How Does Prime Rate Affect Me?
What Does It Mean?
Recently the Federal Reserve (FED) increased the Federal Funds Rate which in turn effects the United States prime interest rate. The U.S. prime rate is the base rate that all credit unions and banks use to determine their rates.
Below is important information to keep in mind when prime rate changes.
How Often Does Prime Rate Change
Prime Rate is tied to economic conditions, and doesn’t change in any regular interval. It previously had not changed since 2008, however since 2015 it has changed four times. Additionally, it can change multiple times per year. In 2001, Prime Rate changed 11 times!
How Does It Affect You?
If you have an adjustable-rate loan: i.e. a credit card, student loan, or a home equity line of credit, your interest rate will fluctuate with prime. Any reoccurring payments you may have set up in online banking will have to be updated to account for the change. When the rate change is a 0.25% increase, it amounts to 25 cents for every $100 in principal, so smaller balances will not be impacted as substantially as large loans. Fixed-rate loans won’t be affected.
Should I Be Worried?
Interest rates are still historically low and the climb back to “normal” will be a slow one. The Fed will monitor how the recent increase affects the economy
We’re Here To Help
As your financial partner, we are here to answer your questions about Prime Rate, how rate changes affect you and your accounts, and what your financial strategy should be.