Key Takeaways:

• The Federal Reserve raised its federal funds rate target range by 25 basis points, to 3.75% to 4.00%, in September 2026 and held it there in October.

• Variable-rate debt such as credit cards and HELOCs reprices fastest. Fixed-rate mortgages and home equity loans do not change when the Fed moves, and new mortgage rates follow long-term Treasury yields.

• Higher rates can raise yields on savings accounts, CDs, and new bonds, but banks do not raise savings rates by the same amount or at the same time. Rising yields generally lower the market value of existing fixed-rate bonds.

In September 2026, the Federal Reserve made the choice to begin raising interest rates by increasing the benchmark federal funds rate by 25 basis points, to 3.75% to 4.00%. Per a 10–2 vote at the October meeting, interest rates will remain at the 3.75% to 4.00% target range as “inflation remains elevated,” according to the press release.  

For the average American, this sustained increase in interest rates could lead to higher monthly credit card payments along with higher APRs and financing costs for new debt. But for those looking to build their savings, the recent Federal Reserve decision could bring with it higher APYs, bond yields, and other opportunities for accelerated growth. 

Navigating both the financial upsides and downsides of climbing interest rates requires careful consideration and expert insight, like personalized guidance from a financial advisor. Whether you are a retiree, business owner, prospective homeowner, or have substantial unsecured debt, it's important to understand why interest rates rise and what financial moves make the most sense for your unique situation. 

Why do interest rates increase?

Interest rates increase because the Federal Reserve, in its own words, seeks “to promote maximum employment and stable prices.” If inflation is rising too fast, there is a high demand for money/credit, the economy appears strong, and interest rates may be increased by the Federal Reserve in an effort to combat those factors. 

The Federal Open Market Committee (FOMC) of the Federal Reserve meets eight times a year to review the state of the economy and discuss notable financial developments. They consider factors like unemployment rates, inflation, economic growth/stagnation, and global influences (e.g., geopolitical conflicts). At the end of each meeting, the committee decides whether to raise, lower, or hold the target range for the federal funds rate.  

For example, in the September 2026 rate decision, the Fed cited a low unemployment rate and strong economic growth as reasons for the increase. In a previous March 2022 rate increase move, the Federal Reserve backed its decision with claims of a strong labor market and inflation that was elevated by post-pandemic concerns and overseas conflict. 

How have interest rates changed over time?

Interest rates set by the Federal Reserve have varied quite a bit over the last several decades, hitting a high of 19% in 1981 and a low of 0% in December 2008 and again in March 2020. To show how widely interest rates can swing, here is a look at how the federal funds effective interest rate has changed from 1970 through 2026. 

Board of Governors of the Federal Reserve System (US), Federal Funds Effective Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/FEDFUNDS, September 25, 2026.

As you can see in the above chart, rates can fluctuate or change steadily, and sometimes they plateau and remain unchanged for months or even years. For example, from November 2017 to September 2018, the rate increased steadily, being raised 25 basis points once every two meetings. In contrast, during the two March 2020 meetings, the rate fell a total of 150 basis points and remained at the 0-0.25 percent range for two full years.

How do rising interest rates affect borrowing and debt?

When interest rates rise, new debt can become more expensive, and securing funding may become more difficult. As Steve Ely, former regional president of Equifax and current CEO of eCredable, points out, “Credit cards, home equity lines of credit, and some other loans can become more expensive when rates rise.”

After the Federal Reserve raises its target range, banks usually raise the prime rate within a day or two. The quickest changes usually show up in variable-rate debt. Credit card issuers typically apply the higher rate within one or two statement cycles, and HELOC rates change on the schedule in the borrower's loan agreement. On credit cards in particular, “people who carry balances may see more of their monthly payment going toward interest instead of paying down what they owe,” Ely says. 

New fixed-rate loans may also rise, though the change will happen more slowly. Banks may adjust rates on new personal and auto loans within a few weeks, but new home loan rates are tied to long-term Treasury yields, so they can rise or fall independently of a Fed decision. 

Increased costs for homeowners

Homeowners with fixed-rate mortgages and home equity loans will not see their rate change when the Fed raises its federal funds rate target. But those with an adjustable-rate mortgage (ARM) or HELOC may see higher rates. HELOC interest rates are directly tied to the U.S. prime rate, which reflects FOMC decisions, and banks often update their own rates on a monthly or quarterly cycle. Depending on the loan terms, borrowers in either the draw or repayment period may face higher interest rates and monthly payments.  

For ARM borrowers in the adjustable rate period, once your scheduled adjustment hits, the new interest rate will be higher, but likely not as high as the Federal Reserve increase. This is because many lenders use Secured Overnight Financing Rate (SOFR) averages, which look at rolling 30-, 90-, or 180-day calendar periods instead of just today’s SOFR index rate. If your lender uses a different index, your interest rate may be more in line with Federal Reserve rate increases.

Increased costs for small business owners

As interest rates rise, “For small business owners, the cost of borrowing becomes even more important,” says Ely.  To highlight this impact, Ely points out that “A business that uses financing to buy equipment, expand, renovate, or support their cash flow may face higher financing costs.”

For example, let's say after the Fed rate increase, a new business loan for your planned expansion increases from $2,000/month to $2,100/month. That may not seem like much, but if the rate hike also slows customer spending, you could face higher expenses alongside lower revenue. This situation “can change whether a new investment makes financial sense,” says Ely.

What can borrowers do to offset higher interest rates?

For borrowers, there are steps you can take to combat the higher costs associated with rising interest rates. Ely suggests that the average household should “review your debt now. If possible, pay down high-interest debt and make room in your budget for higher borrowing costs.” 

You can also protect yourself against future rate increases by looking for ways to shift variable-rate debt to fixed-rate using balance transfer offers, HELOC conversions, or debt consolidation loans. 

If you plan to take on new debt now, here are specific strategies you can use to lessen the impact of interest rate hikes. 

• Shop around: Compare interest rates, term lengths, fees, and more from multiple lenders. 

• Borrow less: This can lower your monthly payment and may help you secure a better interest rate. 

• Increase your down payment: Putting down more cash upfront reduces the loan amount and can make the deal more attractive to lenders. 

• Purchase points: Each point you buy now lowers your mortgage interest rate, which can lead to significant savings over the life of the loan. 

• Go with a shorter term: Shorter repayment terms often come with lower interest rates.

• Postpone the loan: Waiting gives you more time to save for a down payment and compare lenders, although interest rates may rise or fall in the meantime. 

Ely also recommends that customers focus on building good credit, as it can become even more valuable when borrowing becomes more expensive.

For business owners seeking new funding amid rising interest rates, Ely says “recent guidance suggests updating budgets and projections to account for financing costs, timing, and how long an investment will take to pay for itself.” This can help you decide whether a planned expansion, upgrade, or acquisition is still feasible or needs to be postponed until you can optimize cash flow and grow your working capital. 

How will increasing interest rates impact saving and investing?

Rising interest rates aren't all bad news. In addition to higher interest rates on loans and credit cards, rates will also increase on savings accounts, CDs, and bonds. For savers and investors, this offers the potential for accelerated growth. 

But as Ely points out, “banks do not all raise their savings rates by the same amount or at the same time.” CD rates often change first, with short-term CDs rising faster than long-term CDs.  

Yields on newly issued bonds may rise as market interest rates increase. When yields rise, the market value of existing fixed-rate bonds generally falls. 

How can savers and investors take advantage of increasing interest rates?

If you are looking to maximize the benefits of higher interest rates, it’s time to look at your available cash and investments. Now may be the time to compare interest rates on savings accounts and consider switching banks. And those with surplus cash on hand can take advantage of higher returns on short-term CDs. 

Higher bond yields may make certain fixed-income investments more attractive, depending on your goals and risk tolerance. Rates offered on fixed-rate annuities may also change with broader interest-rate conditions, which can affect retirement income planning. Even business owners can benefit from higher rates when they store excess money in interest-bearing money market accounts or savings accounts with high APYs. 

Savers and investors can also take this opportunity to review goals and performance. As Ely states, “This is a good time to look at both sides of the balance sheet.” Any money not needed to pay down variable-rate debt can be shifted towards taking advantage of increased rates on bonds and savings vehicles.

The Aligned Perspective: How can a financial advisor help you prepare for future interest rate changes?

Rising interest rates present both a challenge and opportunity: while borrowing and managing existing debt becomes more costly, savings and investments can earn more. However, maximizing these advantages while limiting the downsides can quickly become complicated.

Different financial situations demand different strategies. For example, homeowners might see higher monthly HELOC payments, business owners could face expansion delays, and those saving for retirement could see boosted yields that need strategic management. With personalized guidance from a financial advisor, you can get the insight you need to protect your financial well-being. 

Whether you’re facing higher debt payments and need help reworking your budget, or want to take advantage of higher yields on conservative assets, a fiduciary advisor can help you make smart moves that align with your unique financial situation and needs. To connect with an advisor who can help you navigate interest rate changes, explore Datalign Advisory’s matching platform.

Rising Interest Rates: Frequently Asked Questions