Zelda Smith can remember when there was no mystery or uncertainty surrounding interest rates.

Smith joined the team at Freedom United Federal Credit Union in 1979 and celebrated 44 years with the Rochester-based entity in January. During that time, she’s just about seen it all.

“I’ve sweated through many a financial crisis,” said Smith, currently president and treasurer of the credit union, which also has a growing branch in Harmony. “Right now, we don’t know where things are going.”

That wasn’t the case in her early days in the business.

“It was straight 6% on savings and 12% on loans, no matter what you borrowed for,” she recalled. “Now, things are much more complex. It’s just the changing of the market — the changing of life. Everything is different today. I never thought I’d see what I’m seeing today.”

What Smith and others in the financial sector see today are interest rates as high as they’ve been in more than two decades. That can be rough for people looking to borrow money to buy a home or a vehicle, or to pay for their education.

But there’s a flip side to the interest rate coin — higher rates mean higher yields on various types of savings instruments such as certificates of deposit, money market accounts and traditional savings accounts.

So, it all depends on what side of that coin you’re looking at as to whether today’s interest rates are a positive or a negative.

Interest rates have been steadily rising since early 2022 in the Federal Reserve’s attempt to stabilize the economy. According to Reuters, the Fed has raised its policy rate a total of 5.25 percentage points since March 2022 in a bid to curb inflation, which reached 7% last summer but fell to about 3.2% in August.

Heather Lively, chief financial officer at NexTier Bank, keeps a close eye on such things and can tick off the statistics with no trouble. “The Federal Reserve increased the rate at which banks borrow money 11 times since March 2022,” she said.

When banks pay more to borrow money, they must pass those added costs onto the consumer, Lively said. That translates to mortgage rates reaching their highest point in years — and that’s no fun for someone looking to buy a house.

Still, today’s 8% average rate for a 30-year fixed mortgage doesn’t compare to what prevailed back in the early 1980s. According to Rocket Mortgage, the high point in mortgage interest rates came in 1981 when the annual average was 16.63%.

“My parents remember a time when interest rates were really high,” Lively said, “and they tell me about it all the time.”

Today’s rates are nowhere near 16%, but for those who became accustomed to rates roughly one-fifth that high, the loan picture in 2023 is not a rosy one.

“Our average mortgage rate climbed from around 3% to surpassing 7% today — that’s the highest rate we’ve seen in more than 20 years,” Lively said. “And that’s a tough pill to swallow, especially for the first-time homebuyer. People just got used to lower rates in 2020 and 2021. It’s a really big change. But it’s not something you haven’t seen in the past, looking beyond 20 years.”

William Marsh, Farmers Bank’s market president for Pennsylvania, feels the impact of the current rates on both a professional and personal level.

“I have a son who’s looking to buy a house,” he said. “He could have gotten a 3.5% mortgage two years ago, and now it’s at 7. It makes me sick to my stomach. He might still buy a house, but he might not buy as big a house.”

Marsh sees firsthand the impact higher interest rates are having on would-be homebuyers. But not in the sense that people have stopped seeking loans. Rather, they’re adjusting their expectations and reevaluating the types of homes that will work for them in today’s market.

“Even though rates are high, we are still open for business — we’re still doing loans,” Marsh said. “It’s just that maybe people are buying smaller houses.”

It’s not just the individual consumer who’s affected by the current interest rates. Collin Randall, a senior financial adviser for Bennet Associates Wealth Management, said businesses large and small also feel the pain.

“For over a decade, companies had been able to access cheap financing to help fund and grow their businesses,” he said. “Now, the interest expense on these types of loans is much higher, limiting how much money can be invested in new projects or hiring employees.

“This is all by the Federal Reserve’s design. To fight inflation, the Fed is attempting to slow down the economy and spending. Higher rates for both the consumer and businesses will affect economic activity.”

Howie Pentony, a financial adviser and investment columnist for the Butler Eagle, has more than 40 years of experience in the finance industry and his memory goes back even longer than that when it comes to interest rates.

“I remember paying 9% for a mortgage, but that was 50 years ago,” he said. “There has been nothing recent approaching 7%-plus mortgage rates. It’s something that people will either get used to and borrow money anyway or borrow less. You have to make adjustments and one of those in the home-buying mode is to buy a cheaper house. Nobody wants to do that, but when interest rates are too high, you might have to.”

Pentony’s business involves investors, rather than people looking to borrow money, and so for him and his clients, the current interest rate situation is hardly a bad thing. Take for example the current state of money market accounts. After offering virtually nothing in the way of interest for years, such accounts now yield in the 4% to 5% range, Pentony said.

“If you’re a saver and an investor, that’s good for you,” he said. “Also, you can get 5%-plus in short-term Treasury bills. That’s a direct obligation from the federal government, and if you hold them to maturity, there’s no risk. You get paid 5% and no risk — that’s good for people who would like to put some of their money someplace other than in the stock market directly.”

However, not everyone is in a position to take advantage of the current interest rates from a savings or investment standpoint.

“To be honest, I don’t see too many people who can save anymore,” Smith said. “With the price of daily living expenses going up so high, it’s rare, especially for families. They just can’t save.”

Smith said she hears from customers who are fed up with the current state of the economy. It’s not that people are unhappy with the credit union’s rates for auto loans, for example. Rather, it’s the price of those vehicles.

“Now it’s nothing to borrow $50,000 to $70,000 for a car or truck,” she said. “The $70,000 loans are usually for the trucks. Trucks today are practically out of the range of a lot of young men who used to buy trucks.”

Some folks are in a position to save, though, and for those who already have some money socked away, today’s interest rate climate can be a major plus, Smith said.

“People are very rate-conscious right now,” she said. “If (credit unions or banks) have a special rate, they’ll move their money.”

Lively said not all banks and credit unions are created equal when it comes to the rates they offer for various types of savings instruments.

“Some can offer much higher rates than others,” she said. “We offer some great specials when it comes to money market accounts and certificates of deposit. At NexTier, we’re offering a nine-month CD with a fixed interest rate of 5.25%. We haven’t seen a rate on a CD like that for a while.”

As a result of such programs, NexTier is seeing an increase in its money market and CD products. “During times like these, many people like to store their money in savings accounts to watch that money grow over time,” Lively said.

Marsh agreed that times are good for those in a position to save.

“Two to three years ago, you were getting maybe a half-percent on savings, and now you’re getting over 5% for a pretty short period and even extending out a little bit,” he said. “If you look at mortgage rates in the recent past, they’ve essentially doubled, but the savings and investing rates have increased five times. That part is good for consumers who aren’t in the business of borrowing. If you have money you want to invest and don’t want to go to the stock market, it’s safe to save.”

For those who have money in the stock market, which isn’t exactly flourishing lately, or 401(k) accounts, it might be tempting to take some of it and put it in more traditional savings instruments, given the current interest rates. But Pentony said, based on his years of experience, that’s not the way to go.

“That’s a choice you don’t make if you’re very smart,” he said. “In the last 125 years, stocks always have recovered. Trying to time the market doesn’t work. You should buy high-quality investments, be prudent and be patient.”

Pentony said most investors he knows do not have all their assets tied up in the stock market, so for them, putting some of their money into short-term Treasury bills might be a good strategy.

“Nothing big — they’re not trying to maximize anything,” he said. “They’re just trying to make a few bucks. Over the past few years, they haven’t been able to do that.”

While everyone knows the current state of affairs when it comes to interest rates, no one knows what will become of those rates going forward.

“We get that question all the time,” Marsh said. “What are rates going to do? Our job as bank managers isn’t to predict the future but to map out different risk scenarios. What happens if the bank profitability rate goes up 2% over 2 years — what do we do if that happens?”

Marsh said his research tells him that interest rates might see one or two more “bumps” before they start decreasing over the next couple of years.

“We spent 10 years waiting for rates to go up and they stayed extremely low,” Marsh said. “We’re just at the mercy of the marketplace.”

Smith also sees rates going up, at least in the short term. “The Fed keeps raising the rate and I don’t think they’re done with that yet,” she said. “And it all filters down into the average person’s pocket.”

Lively believes the Fed might increase the rate one more time before the end of the year and then rates might stay steady or increase slightly over the next six months.

“I would imagine that sometime in 2024, you could kind of see rates trickling down a little,” she said.

Thuy Bui, a finance professor at Slippery Rock University’s School of Business, said the fact that inflation has eased over what it was in the summer of 2022 could mean the Fed won’t be as aggressive when it comes to raising interest rates.

“But it’s difficult to predict how quickly they will cut the interest rate or move it back to pre-pandemic levels,” she said. “That we don’t know. But the general expectation is that maybe next year or over the next two years we’ll see interest rates go down.”

With a doctoral degree in finance, Bui has a natural curiosity and pays close attention to interest rates and the economy in general. It’s not just for personal reasons but because she’s tasked with sharing that knowledge and information with her students. And students certainly are concerned.

“Interest rates affect student loans,” she said. “And those students who have credit cards, they see what the interest rates are on those credit card purchases. They worry about that — and they pay attention. It directly affects them.

“That’s what we do in classes — we put things in perspective of real life examples, so they can see how the material is related to their lives. Personal finance is such an essential life skill. Regardless of career choices, you’re going to face these financial decisions. The better you understand, the better position you’ll be in when you come to that point.”