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Federal interest rate hike a plus for Alliant members

Fed rate increase impact on interest rates
April 03, 2017

By Thomas Muellner

If you follow financial news at all, you know that the so-called “Fed rate“ was raised a few weeks ago. But did you know that Alliant has also raised the interest rate it pays to savers?

As of April 1, Alliant members earn 1.05% APY (annual percentage yield) on Alliant Savings Accounts, Supplemental Savings Accounts and Coverdell Education Savings Accounts (ESA) and on Traditional, Roth and SEP IRAs.

Combined with the updated Federal funds rate, which rose to 1%, and the potential for further Fed rate increases later this year, the current outlook is a step in the right direction for those looking to save for the future.

What is the Fed rate (aka, the federal funds rate)?

Commonly known as the federal interest rate or Fed rate, the federal funds rate is an extremely important metric for the United States economy. It sets the interest rate that banks, credit unions and other financial institutions use to lend money to each other and helps financial institutions maintain the reserve funds they’re required to keep on hand by law.

More importantly, the Fed rate serves as a guidepost for borrowers and lenders.

Rate increases help savers earn more

When the federal interest rate rises, it becomes more expensive for consumers and businesses to borrow money. However, by this same principle, it becomes more lucrative to save as a consumer.

Unfortunately, historically low interest rates over the past decade have put a damper on potential savings growth. That’s taken a particularly tough toll on retirees and individuals nearing retirement. But a new pattern of small, positive increases from the Fed is helping to turn the tide. 

”We know many of our members are diligent savers who have been frustrated by low interest rates brought on by the Great Recession,” shared Dana Vas Nunes, senior manager of deposit products at Alliant. “But the latest announcement from the Fed is reason for optimism as the economy continues to strengthen.”

While it’s typical for banks and financial institutions to wait to lift the interest rates they offer to savers until after the Federal rate has settled, we’ve taken a more proactive approach at Alliant, raising the rate members earn to 1.05% APY.

“At Alliant, we strive to reward our loyal members with consistently high interest rates. In fact, our latest rate increase means our savings accounts now pay 15 times the national average for savings accounts,” added Vas Nunes.

Other implications of a rising federal rate

While there are blue skies ahead for savers, the forecast isn’t quite as favorable for borrowers, particularly individuals with credit card debt and short-term loans.

Changes in the federal funds rate have a direct impact on the prime interest rate. Since it costs financial institutions more to borrow, this has a trickle down effect on consumer borrowing as well.

As a result of the recent rate hike, you may see a slightly higher interest rate on your next credit card or short-term loan statement, assuming it’s tied to a variable rate (most are). If you carry a hefty balance month-to-month, this has the potential to impact your budget.

On the bright side, many loans types, such as Federal student loans, mortgages and auto loans, are less susceptible to changes in the federal rate. In all likelihood, you won’t need to downsize your home or vehicle because of this modest uptick.

Moreover, if you’re considering buying a new home or financing a large purchase, you may look to ramp up your timeline before rates jump again. Interest is still very low, compared to 10 years ago, so you may be able to save some coin by locking in a fixed rate today.

Whether you’re a student of the market or a casual consumer, knowing how the federal interest rate impacts your daily life can make a major difference in your ability to reach financial goals. By understanding that it brings both opportunities and challenges, you can navigate the changing financial winds, regardless of which way rates are trending.