Individual Stocks

Interest Rates

If interest rates increase, does this harm bank stocks and financial sector stocks?

Some experts agree that as interest rates rise, banks and some financial stocks may make more profits, as they are able to loan more expensive money and pass the increases in the price of borrowing to their clients. Other experts see rising interest rates as harmful, as they may stifle demand for credit and cause a slowing effect on profits. In the example of rising mortgage interest rates, increases may make many people refinance at a higher rate, which is better for the lender’s profits, but may stifle demand for new mortgages. Higher interest rates may also be passed on to millions of consumers who use credit cards, effectively generating more profit for credit card issuers as well.



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