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Who is benefiting from rising interest rates?

June 17, 2013 by · Leave a Comment 

Your traditional banks are sure to benefit from rising interest rates. The fragile economic recovery may be in danger if interest rates, both short and long-term rates were to rise above current levels.

Interest rates including home mortgage rates are kept at a lower rate mainly due to the Federal Reserve’s $85 billion a month bond buying program as part of its Quantitative Easing (QE) program. Now that Fed is sending signals that it may slowdown the bond buying program in the near future, interest rates are creeping upward. Another reason is the U.S. economy is showing some signs of economic recovery.

Bank interest rates including credit card rates and HELOC (home equity line of credit) are tied to short-term interest rates. The Feds intend to keep its current federal funds rate which is between 0 and 0.25 percent until unemployment rate falls below 6.5 percent and as long as inflation remains low.

Banks are more sensitive to interest rate than any other. Higher interest rate helps banks to make more money. Signs of rising interest rates are sending bank stocks higher these days. The KBW Bank Index rose more than nine percent within the last month.