09/12/2016 04:29 pm ET Updated Sep 13, 2017

How Fed Hike Would Hit You

The Federal Reserve Board has been threatening to raise interest rates for almost two years. And now it really seems poised to take the second rate hike step of the past 10 years. (The first and only rate increase of this cycle took place last December.)

The Fed is anxious to get the interest rate levels back to "normal" - although there is no consensus about how normal, higher rates in the United States would work, given the fact that government bond rates are actually below zero - negative - in most European countries and Japan.

The Fed usually raises interest rates to stop inflation or to put the brakes on an overheated economy. Neither of these conditions is present right now. And with slow job growth and concerns about the manufacturing and services sectors, many economists are scratching their heads over the wisdom of a rate increase.

Here are five ways a rate hike could impact your finances:

-A boost for savers. Savers have been punished by low interest rates in recent years. An expected quarter-point increase by the Fed won't put much money in the average saver's account, but at least it is a small step in the right direction! A word of warning: If the Fed finds good reason to raise rates, this might be only the first step of many. So avoid the temptation to lock up your money in CDs of more than six months' maturity.

-Mortgage rate hikes. The mortgage interest rate is more directly connected to the 10-year U.S. Treasury bond. So if you're planning to buy or refinance, consider locking in that rate guarantee now.
On the other hand, if you have an adjustable rate mortgage, your monthly payment could move higher if this is the start of a trend. And those with 10-year "balloon" mortgages coming due could be in for a shock when they need to find a new deal.

-Credit card rate shock
. Finance charges on credit cards are already stratospheric. But a headline rate hike could give issuers an excuse to make you pay more. Don't plan to add to your card balances during the coming holiday shopping season.

-Stock market jitters. The market sold off on rumors of an impending Fed rate hike. The idea is that higher rates would be bad for business and profits - and that higher interest rates would make savings more attractive than taking investment risk.

But don't be too quick to pull the trigger and sell stocks. Higher interest rates would make the U.S. dollar more attractive - pulling in a torrent of money from overseas. A lot of that money would go into stocks, pushing prices higher.

-Job uncertainty. Here's the real risk of higher rates. Business needs confidence that the economy is growing. And when confidence is lost, business retreats - cutting jobs and hours worked.

There is no certainty that the Fed will raise rates in September. There are plenty of reasons for it to hold off. Like the little boy who cried wolf, we have stopped worrying about a Fed move. And that's exactly the reason to take a closer look at your vulnerability. That's the Savage Truth.