Rates Expected To Go Up In The New Year

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Since the onset of the Great Recession, people with cash savings have been troubled by the low interest rates these accounts have been earning. And it’s no wonder: most savings accounts are paying less than 1% in interest these days. How is a saver supposed to get ahead?

If you’ve been frustrated by your saving’s account’s paltry earnings, you’re in for a treat in 2014. According to the New York Daily News, interest rates on deposit accounts (like savings and checking accounts) are expected to jump in the new year. This means that people who have been doing their best to put cash aside for emergencies, vacations, or other big expenses are likely to see their accounts grow at a faster rate.

Rising rates are largely due to an improving economy. The stock market has boomed in 2013 and home prices have gone up substantially, both signs that the overall economy has risen from the ashes. Generally speaking, when the economy is doing well, interest rates are higher.

But there are other factors at work: because the economy is showing signs of health, the Federal Reserve is making plans to pull back on its bond-buying policy, a move that could trigger higher interest rates in and of itself.

A rise in interest rates on bank accounts is good for savers, but it’s important to remember that rates don’t go up in a vacuum. In other words, if rates are going up on one type of account, they’re going up on all accounts. This means that interest rates on loans – like mortgages – are also expected to climb in 2014, which might be bad news for the still fragile housing market.

Experts who watch the housing market have reason to be concerned about the impact that higher mortgage rates will have on home sales. In 2013, mortgage rates rose an average of 1% over the course of year, and home sales slowed appreciably when rates started to go up. This proved that Americans are still a little gun-shy about buying homes; unless there’s a great deal to be had, the incentive to buy just isn’t there. But on the other hand, the unemployment rate has dropped since the last spike in mortgage interest rates, which means that consumers might be more confident about taking a risk on a home purchase than they have been in the recent past.

All these factors make for an uncertain financial future in the U.S., but one thing is for sure: 2014 won’t be a boring year for the economy.

About Lindsay Meredith

Lindsay is a high school teacher and personal finance blogger. She lives, works, and plays in the Washington, D.C. area.

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