So the Fed raised rates yesterday for the first time since 2006. With higher interest rates coming, what does this mean for you?

Why did the Fed do it?

Usually when the Fed raises interest rates, it does so to “tighten” the economy, meaning its goal is to slow down an economy that’s growing too fast in order to prevent a big crash in the future. It seems like an odd choice considering the US is still recovering from the recession. But the Fed wants to signal to the rest of the world that the US economy is doing well, and by raising interest rates, it tells everyone else our economy is strong enough to handle it. The Fed says an improved jobs report was one key indicator which made them decide to raise interest rates now as opposed to three months ago.

So now what?

Well, the interest rate hike could affect a few areas of your life. First off, what about those who have loans?

If you’re a borrower, it’s true that the cost of borrowing will rise with higher interest rates. However, most loans take into account any expected future changes, like interest rates or inflations, so odds are you won’t notice a big difference in your loans.

What about those who have mortgages? While it is true that mortgage rates will go up, again it will not be a significant difference. Even if rates go up, in comparison to recent history, mortgages will still be at historic lows.

If you have money in the bank, interest rate hikes are good news for you, as you’ll be receiving a greater return on your savings.

So then do we need to worry about the rate hikes? Well, some areas could be negatively affected. Those who have bonds or bond funds will be affected. Anytime there is an increase in yield, prices are going to fall. This means your bonds could be subject to be called, or your bond fund can lose value.

Those invested in the market should watch carefully. Stocks historically have performed worse during times of rate increases. Furthermore, as the Fed has not specified exactly when or by how much rate will increase, only that the increase will be gradual until the target is met, the uncertainty could stir a bit of volatility, as the market tries to anticipate the Fed’s actions.