If someone asked to borrow $10,000 from you today and paid you back that same $10,000, would you be ok with that? If you’re trying to make good use of you’re money, the typical answer would be, “No deal.” With so many other choices for the use of your money, getting no “return” or “interest” on that money would not be prudent.
Most everyone is affected by one or more interest rates at any time. Most prominent for the majority of people are savings rates, mortgage rates, bond rates and credit card rates. Investopedia provides the definition of interest rate as: “The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR).”
There are two important questions to ask yourself regarding interest rates:
a) Do you know how competitive the interest rate is on the financial instruments you have?
b) Are you positioned well for a change in interest rates in the future?
At Teske Financial, we help our clients with the answer to these two important questions. We also help them to take advantage of interest rate changes and point out where there are issues with interest rates on financial instruments they own.
Losses can be significant over time when your financial instrument has a higher interest rate in the case of debt or a low interest rate in the case of savings and investments. Finding an additional $200 per month could produce over $250,000 in additional savings over your working lifetime.
Where have interest rates gone in the recent and not-so-recent past? Here’s a chart to help get an idea. The Federal Funds rate is set by the Federal Reserve and affects numerous other rates that you receive. (Click on the chart to see a larger image)
Get an idea as to why your savings and money market rates have been so low in the last four years as compared to what you could’ve obtained previously. The last time rates were even close to this low was 60 years ago. The last time rates stayed at generally the same level for four years? Not in our lifetime.
If you look at the chart closely, you’ll notice that the grey vertical bars represent recessions. With one exception, what happened every time interest rates were increased? What direction is inevitable for current interest rates?
Are you prepared? If you have a current financial advisor, are they talking to you about this? Would you like to know what to do about it? Select the “Contact Us” button on the top corner of this page and we’ll help you answer the question(s).