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When the Federal Reserve is about to make a decision about interest rates, it often takes over the headlines. But what do these rates actually mean for you and your retirement? Interest rates affect nearly every aspect of financial life, including mortgages, credit cards, savings accounts, and the stock market.

In this episode of Money Wisdom, Jake Doser, CFP®, CPWA® and Nicholas J. Colantuono, CFP® break down how interest rates work, why the Federal Reserve adjusts them, and what those changes mean for borrowers, savers, and investors.

Understanding the Federal Reserve

The Federal Reserve, or “the Fed,” is the U.S. central bank that oversees the government’s monetary policy. The Board of Governors of the Federal Reserve System decides whether to lower or raise interest rates. These decisions can have an impact on many economic variables, including:

• Borrowing

When you think about interest rates, the first place it hits home for many people is their mortgage. When interest rates are high, it costs more to borrow money. When borrowing is more expensive, consumers will spend less, which helps to cool down inflation. Lower interest rates, on the other hand, make it easier for people and businesses to borrow, spend, and invest.

• Saving

While high interest rates are tough on borrowers, they’re great for savers. For example, having a portion of your money in CDs or savings accounts can offer higher returns when rates are at the higher end.

• Spending

In times of high rates, consumers often delay significant purchases like homes, waiting for rates to drop. That’s how the Fed can either stimulate or contract the economy — by changing interest rates.

• Stock Market

Generally, lower rates tend to boost stock prices. If it’s cheaper for companies to borrow, they invest more in growth, buy back stock, or expand, which can drive prices up. On the flip side, high interest rates slow economic activity. Businesses and consumers pull back, and that can dampen stock market returns.

Predicting interest rates is difficult. The key is having a plan with the right mix of safety and growth. No matter if rates go up or down, a clear strategy can keep your retirement on track.

Interested in building a simple, actionable plan for your retirement and investment success? Get your free Money Map book by texting “MAP” to 800-757-0436.