Interest rates have continued to rise this year, costing homeowners more for their mortgages and bringing small benefits to savers or some investors.
With the rates forecast to continue going up, it is important to figure out what the impact will be and how to deal with it.
A key reason for those rising rates is the Federal Reserve Board (the Fed) in the United States, remote as it may seem.
Among the Fed's key goals are keeping prices in the US stable and providing jobs for Americans.
While the full toolkit it uses is complex, the basic concept is that the Fed will raise interest rates to reduce borrowing and purchases by consumers and businesses if inflation is rising.
If the economy slows or inflation drops, the Fed lowers interest rates to encourage borrowing and purchases.
The US economy has been strong recently and inflation is rising, which has led to higher interest rates.
When the Fed raises interest rates, investors and companies around the world may move money to the US to earn more on their deposits.
Banks in other countries then raise their interest rates so they can keep deposits that might otherwise move elsewhere.
Banks in Singapore have been among the many worldwide that have been raising rates, and that trend looks set to continue. Investment management firm Vanguard said that it expects continued strength in the US labour market and also forecasts inflation to end the year slightly above 2 per cent. It then expects the Fed's interest rates to continue rising, from about 2 per cent now to about 3 per cent by the end of 2019.
THE IMPACT ON CONSUMERS
Consumers feel the effects from these increases quite fast.
Many mortgages here have adjustable rates based on the Singapore Inter-Bank Offered Rate (Sibor), which rose from about 0.67 per cent in December 2016 to 1.33 per cent in December 2017 and has continued upwards. When Sibor rises, homeowners pay more interest on their loans.
For example, while a 0.25 per cent rate rise might not seem like much, it could cost homeowners more than S$100 per month on a loan of S$500,000.
Homeowners who are used to their payments being affordable will have less money. Investors in properties may also be stretched, both because their mortgage payments have increased and because there may be a weaker rental market.
And rates on other loans may gradually increase, too.
Investors don't necessarily fare well either.
Stock prices may fall when interest rates rise.
Investors have less money to invest if they are paying more interest, and higher borrowing costs can reduce corporate profits, so demand for stocks can drop.
Distributions by real estate investment trusts (Reits) could also decrease, since Reits tend to borrow to buy properties and their loan costs may rise.
Interest rates on savings accounts or even fixed deposits may barely budge for quite a while, as banks often put off increases in order to manage their costs.
Travellers, too, may feel the impact. When foreigners chase higher interest rates in the US, funds flow into the country and demand for US dollars rise, leading to currency appreciation. A stronger US dollar makes it more expensive for consumers to travel to the US or to buy products made there.
Fed rate rises may indirectly affect the job market as well. Interest rate rises tend to slow the economy, which can lead to companies hiring fewer people and make it harder for workers to bargain for higher wages.
WHAT YOU CAN DO
There are a number of steps you can take to reduce the impact of rising rates, or even to benefit from them.
The first step is to pay off loans. Paying off part of your mortgage can help, though that may be difficult. You can also pay off high-interest rate debt, where payments may also gradually become heftier as interest rates climb.
Investment advisory The Motley Fool Singapore suggests relooking at fixed-income investments such as bonds. While long-term bond rates often drop when interest rates rise, you can invest in short-term bonds that are less affected by rate rises or in floating rate bonds with interest based on Sibor.
Financial services giant JP Morgan said that although interest rate hikes tend to drag down bond prices, not all bonds move together and there are still plenty of opportunities. Investing in a pool of bonds through an exchange-traded fund (ETF) can be a cost-effective way to invest.
If you're investing in stocks, banks and insurance companies may do well since their profits can rise when the interest rate they charge on loans increases.
On the other hand, shares in emerging markets can be at risk, because investors may reallocate their money away from risky assets such as emerging markets to less risky assets.
Insurer Manulife suggests checking the interest rates you receive on money squirrelled away in savings accounts or fixed deposits, to make sure you are getting the highest rate possible, and moving your funds to higher-yielding accounts if you can.
While small changes in interest rates might seem insignificant, they do have an impact on consumers. Watching the rates and taking action to deal with changes can save you money and boost your investment returns.