For years, Americans have been told that higher interest rates are coming, eventually. Federal Reserve Chairwoman Janet Yellen and the Fed's Open Market Committee may now be getting ready to lift rates off the floor, probably by a quarter of a percentage point from their current range of 0 percent to 0.25 percent. It could happen at the Fed's meeting on Thursday. Or maybe the Fed will wait again.
"It's this unicorn, this mythical creature that's out there," said Maggie Kirchhoff, a financial planner with Wisdom Wealth Strategies in Denver. "It may exist, and it may arrive, but you're not sure when."
If rates do start rising this month, it would generally be good news for savers and bad news for debtors. But financial advisers are warning clients not to do anything rash.
Here's some of the advice they're offering.
Fix your mortgage rate
Any debt with a floating, rather than fixed, interest rate could gradually get more expensive after the Fed moves. Homeowners with adjustable-rate mortgages, or ARMs, may want to refinance to a fixed-rate mortgage. Their monthly payments may go up in the process, but they'll be locking in some of the lowest fixed-mortgage rates in history. According to a Sept. 9 Bankrate.com survey, the typical 30-year rate is 4.05 percent.
Pay off debt, judiciously
Many Americans are already paying off debt. A Wells Fargo/Gallup investor survey finds that 46 percent of investors have cut debt during the past two years, and an additional 23 percent managed to keep their debt load stable. Higher interest rates would bolster the case for paying down high-interest debt.
That said, it's not smart to devote every cent of your life savings to debt payments. Also, it can be dangerous to pay off debt if it leaves you short of cash, said Barry Eckstein, a financial planner in Wantagh, N.Y.
Find a bank that wants you
The largest U.S. banks pay annual rates of as little as 0.01 percent on savings accounts. After a Fed rate increase, you can expect banks to raise rates on mortgages and credit cards far faster than savings rates.
Rather than waiting for these rates to go up, savers can transfer money to smaller banks and online institutions that are far more eager to attract deposits.
The worst move a saver can make now is to lock in a low rate. This is not the time to buy a five-year certificate of deposit, for example, said Charles Bennett Sachs of Private Wealth Counsel in Miami.