Taking an Interest in Interest: What Does It Really Cost You?

in Your Bank

Interest rates have become a highly visible issue with stories about rate changes filling the airwaves and your newsfeed almost on a daily basis. Much of the press coverage concerns the Federal Reserve, which monitors the economy and makes changes to the key “overnight loan” rate that influences interest rates throughout the economy.

[To make it easy, think of “the Fed” as the central bank for the United States. Among other very important duties, its members are tasked with maintaining the stability of the financial system, keeping inflation under control and stimulating the long-term economic growth…which is not so easy.]

The Fed has the power — and responsibility — to control interest rates. Interest rates play a major role in our economy and in our daily lives, especially when it comes to borrowing. Think of it this way: It may be costly for your ego if you fall a few points short in a competition, but in the game of finance, a few points of interest can cost you a lot more than bragging rights.

Below are a couple strategies to add to your financial playbook:

Develop a borrowing strategy

The wise use of credit can be an important part of your personal and business financial strategies.

  • Use common sense
    Never borrow what you can’t repay. Prioritize your borrowing based on long-term value. Reserve some borrowing capacity for emergencies.
  • Consider the terms
    Borrowing can be confusing. Carefully review all of the terms and conditions before you sign any credit application.
  • Get help if you need it
    If your borrowing gets out of control, take immediate steps to solve the problem. Contact lenders to work out a repayment plan. Quit using (or cut up) credit cards. Seek the help of a qualified credit counselor.

Real estate loans

Mortgage rates are still low, as are many home equity loan rates. Now is a great time to get a mortgage on a new home, refinance an existing mortgage or use a home equity loan to consolidate your debt with a lower rate (and potential tax advantages).  Review our programs and see the current rates.  You can even use our online applications.

Credit cards

All credit cards are not alike. Differences in fees, interest rates and associated benefits for using the card should all be considered when choosing the one that makes most sense for you.  If you carry over balances and pay interest on those balances, having a card that charges lower interest rates can mean the difference of hundreds or thousands of dollars each year.  With an average balance of $5,000, the difference between an 8% and 18% rate means $500 in interest.  You owe it to yourself to compare rates. [Spoiler alert: First Internet Bank credit cards offer competitive interest rates and no annual fees.]

A couple points may be the difference between winning or losing a game, but the difference of a few points in terms of interest rate can be a real game-changer.