Some offers on this page are from advertisers who pay us, which may affect which products we write about, but not our recommendations. See our Advertiser Disclosure . Understanding the Fed's rate decisions: Do we want high or low interest rates ? There are pros and cons to both scenarios. B Ben Luthi Tue, July 28, 2026 at 8:24 AM PDT 7 min read When the Federal Reserve changes interest rates, the impact reaches far beyond Wall Street. Higher rates can help savers earn more on their cash, while lower rates can make mortgages, car loans, and credit cards more affordable. But because every rate move creates both winners and losers, there's no simple answer to whether high or low rates are best. Understanding why the Fed raises and lowers rates and how those decisions affect your money can help you make smarter choices about saving and borrowing. Why does the Federal Reserve control interest rates? The Federal Reserve is mandated by Congress to promote stable prices and maximum employment within the U.S. economy. One of the tools it has at its disposal to achieve these goals is the federal funds rate . During times of high inflation , for instance, the Fed will raise its federal funds rate, which is the rate banks charge each other for overnight loans to meet cash reserve requirements . When the federal funds rate increases, financial institutions also increase interest rates on certain types of loans, such as credit cards, auto loans, personal loans, and, less directly, mortgages. Many of them also increase the interest rates on their savings products to expand their lending capacity. This makes it more expensive for Americans to borrow money, but it also means they can earn more on their savings balances. On the other hand, if the Fed wants to stimulate economic growth, it will lower the federal funds rate. When this happens, loan interest rates also go down, encouraging borrowing and spending among consumers and businesses. The downside is that deposit accounts pay less interest, stunting savers' ability to grow their savings. Read more: Fed rate cut: How it affects your bank accounts, loans, credit cards, and investments Pros and cons of high interest rates Depending on your situation, higher interest rates can either help or hurt your financial well-being. Here are some benefits and drawbacks to consider. Pros Better savings rates: If you have a lot of cash in savings, you may benefit from higher rates. For example, high-yield savings accounts can offer rates roughly 10 times the national average (or even higher in some cases). No impact on existing fixed-rate loans: If you took out a loan with a fixed interest rate before market rates started to climb, your monthly payments won't be impacted. Incentivizes financial discipline : Higher borrowing costs can help discourage taking on impulsive or unnecessary debt, prompting you to focus more on budgeting and saving. Cons New loans are more expensive: If you take out a new loan when interest...
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