Transcript for Interest rates raised amid inflation concerns
- Amid ongoing concerns about the health of the economy and the banking system, the Federal Reserve has once again raised interest rates by a quarter percentage point.
- The decision comes weeks after the collapse of Silicon Valley Bank and in response to the persistently high levels of inflation. And here to discuss what all of this means for consumers is ABC Business Reporter Alexis Christoforous. Good to see you.
- Hey, good to be with you guys.
- So tell us, what does this decision here to raise interest rates mean for the American people, the average Americans?
ALEXIS CHRISTOFOROUS: Right. Well, you know these higher rates are part of the reason why the banking system is under so much stress. But despite that, the Fed went ahead and raised interest rates anyway to combat high inflation. If you're keeping count, this is the ninth interest rate hike in 12 months. It's meant to make borrowing money more expensive to slow the economy and hopefully bring consumer prices lower.
So bottom line, here's what it means. Expect rates to go up on your credit cards, which by the way, are already at a record high also, higher rates for auto loans, home loans, small business loans, home mortgages as well. On the plus side, you're making more money in the bank, so if you have a savings account or a certificate of deposit, you're enjoying the best interest rates, the highest interest rates in 15 years.
- I keep getting those emails from my savings account saying the interest rates gone up again. The interest rate has gone up again.
- You're right.
- So what do you recommend for those people at home who are worried and they want to do something or feel like they need to do something?
- Absolutely. So the first thing you want to do is make sure you are banking with a bank that is insured by the Federal Deposit Insurance Corporation or FDIC, most banks are. You can check the website or just simply ask your bank. Also, know that the FDIC insures you $250,000 per person per account, and if you have a joint account, you get double coverage.
So if you have an account with your husband in your checking account, that account is insured up to $500,000. If you've got kids, sprinkle the money amongst them in different accounts in what's called a living trust. And you don't have to keep all your money in one bank. You can open up several bank accounts in different FDIC-insured banks to limit your exposure.
- That is good advice. Let's talk about the FDIC. That's the agency that oversaw the collapse from the Silicon Valley Bank. What's its general role?
ALEXIS CHRISTOFOROUS: Right, so just a little background. It was created in 1933 during the Great Depression to restore trust in our banking system. And things that it does cover are savings and checking accounts, IRAs, CDs, money market funds, all of those things are covered. Things that are not covered by the FDIC, equally important to know about are the more risky things like stocks, bonds, mutual funds, life insurance, crypto, assets, and annuities, also US Treasury bonds and bills. They're actually backed by the faith of the US Government, not backed by the FDIC.
- But does it insure all accounts in a bank?
- No, not all of them. That's the whole thing. You need to check with your bank and make sure you know which accounts are insured.
- Let's say I don't bank with one of these banks that's been having some troubles. Do I need to be concerned about what's going on?
- Great question. You know, the ripple effects are going to be far and wide, and one of the things we're already seeing is banks of all sizes are starting to lend money less. So if you're looking to refinance a mortgage or finance that kitchen remodel, it may be harder for you to find a loan because banks are getting choosier with who they're giving the money to. This could slow the economy, and some economists are saying we could actually fall into a recession later this year.
- With everything that has taken place, how essential are smaller banks? Do they matter?
- They do matter because we need banks of all sizes to keep our banking system competitive. And these small banks are often the lifeblood of our communities. You often get more attractive interest rates, there are less fees, and they try to support community projects. So it's important that all of these banks thrive.
- Alexis Christoforous, you're the bomb.
I mean, she just spits it out. Just boom, boom, boom, and I'm like--
- Just very fast.
- I try.
- I need to write some of this down. No, thank you very much. We appreciate it.
- You bet.
- Thanks for helping us out.
This transcript has been automatically generated and may not be 100% accurate.