This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Future Shock: Could 'normal' Interest Rates Derail Your Finances?

Mortgage rates and certain other interest rates have been headed higher lately on signs that the economy may be getting stronger. What if this continued? What would a return to normal interest rates look like? ran some calculations on how a return to historically normal interest rates would translate to dollars and cents. But you may want to brace yourself: After such a long period of abnormally low interest rates, you might not recognize a world with normal interest rates.

The following are four examples of how a return to normal interest rates could affect personal finances. The first two may seem relatively mild, but the last two could make quite an impact.

1. Auto loans

Four-year auto loans were recently at 4.69 percent, but over the past 40 years they've averaged 9.86 percent. At 4.69 percent, a $25,000 four-year loan would give you a monthly payment of $572.23. At the long-term average of 9.86 percent, the same loan would require a monthly payment of $632.39. If you could only afford a payment of around $572, you'd have to lower your sights to a car you could get for around $22,650.

2. Credit card rates

The Federal Reserve reports that credit card rates recently averaged 13.01 percent. Historical rates on credit cards are not available as far back as they are for auto loans, but they do go back to late 1994. Since then, credit card rates have averaged 14.33 percent. If credit card rates returned to that level, it would cost you an extra $132 a year in annual interest on a $10,000 balance.

3. Mortgage rates

Current mortgage rates recently rose to 3.81 percent, but even though this is a bit higher than they've been over the past year, mortgage rates are still much lower than the average of 8.69 percent over the past 40 years. Because a 30-year loan involves paying interest over a very long period of time, the effect of a change in interest rates is especially pronounced.

At current mortgage rates, a $200,000 loan would result in a monthly payment of $933.05. Raise the interest rate to the historical average of 8.69 percent, and that payment jumps to $1,564.84. If you needed to keep the payment around that $933 level, you'd have to settle for a loan of $119,250.

4. Savings accounts

The good news is that short-term bank rates would benefit from a return to historical norms. Short-term bank rates have averaged 5.86 percent over the past 40 years, but recently were down to 0.18 percent. That means currently, you'd be earning just $180 a year on a $100,000 deposit. A return to the historical average would boost that interest to $5,860.

There is a great distance to cover between where rates are now and where they have been historically, and they may not bounce all the way back to their long-term averages. Still, even if they go part of the way between here and there, it could be far enough to create big changes.


Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs