CD Rates Could Rise With Fed, But Watch Out for Fees

NEW YORK (TheStreet) -- A proposed interest rake hike from the Federal Reserve, as "predicted" by St. Louis Federal Reserve Chairman James Bullard last week, would be good news and bad news for Main Street consumers.

Bullard's comments to Fox News indicated a rate hike could occur as early as the first quarter of 2015.

"A rate hike by the Fed would be either positive or negative for consumers, depending upon whether they were investors or borrowers on net," says Michael Gorham, a business professor at the Illinois Institute of Technology. "The cost of any floating-rate borrowing, such as credit cards and adjustable rate mortgages, will go up. And the cost of getting into a fixed-rate loan, such as a fixed-rate mortgage, will rise while interest rates are rising, though once the contract is been signed the rate will remain the same for 20 years."

That's the downside. The upside should make bank investors happier.

"Investors will be delighted by the fact that their money-market funds and bank saving deposits will start to pay interest rates visibly greater than zero, and eventually longer-term Treasury and corporate bonds will also pay higher rates of coupon interest," Gorham adds. 

Also see: What Experts Expect from a Fed Rate Hike in Early '15

On the bank savings front, any upfront positioning on certificate of deposit rates should be handed delicately. Yes, you'll want to lock in the highest rates possible, but you don't want to hop around different CDs in that effort and threaten early withdrawal penalties.

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