Get Ready for Interest Rate Hikes

By Dave Carpenter, AP Personal Finance Writer

CHICAGO (AP) — The rate hikes are coming! The rate hikes are coming!

Eventually.

Days after the Federal Reserve seemed to sound the alarm that the era of near-zero interest rates is ending, Chairman Ben Bernanke tempered those expectations a bit this week. Just because the Fed boosted the rate it charges banks, he told Congress, doesn't mean it will move any time soon to boost broader interest rates too.

Nonetheless, it behooves investors to be ready, regardless whether rate hikes come in the second half of 2010 or not until next year.

Despite what some may think, moving toward higher rates will be good news in many ways.

It's an endorsement of the economy's potential to soon stand on its own without the help of emergency rates. It means yields from CDs as well as savings and money-market accounts at banks won't be minuscule much longer. It could even bode well for certain types of stocks.

But higher interest rates are bad for bonds and may make some other holdings less appealing too, especially once inflation starts rising. So investors should take a close look at what they own and consider making changes.

"It's a wakeup call," says Larry Glazer, managing partner at Mayflower Advisors in Boston. "People need to take a step back and figure out what they're trying to accomplish."

Here's how higher rates could affect your personal finances.