Nearly, every day, the media, including, television, radio, newspapers, and Internet websites, mention, and discuss, interest rates. However, rarely, are these discussions, sufficiently, detailed, and explained, so most of the public, truly, understands, what it means and represents, and the potential ramifications, etc. Why should the average person, care, about whether, these are rising, falling, or steady? How do they impact us, in our every day, lives? Although, there are numerous, aspects of our lives, where these matter, this article will attempt to, briefly, consider, review, examine, and discuss, 5 areas, which may be truly, significant, to most people.
1. Stock market: How often, have you heard, someone, say, the stock market, didn’t really matter, much, to them, because, they don’t invest in stocks? In reality, however, if you have any retirement accounts, hold any mutual funds, etc, they matter, considerably! In addition, when interest rates, are low, as they currently are (many believe, in an historic – low manner), there are fewer ways, and places, to invest, and/ or, put one’s funds – in. When/ if, banks and bonds, pay, interest/ dividend rates, which are so – low (below the rate of inflation), it leaves far – fewer options, and, in most cases, this creates a rising, stock market (in terms of pricing, etc).
2. Real estate market: Generally, when the cost, of borrowing, is low, mortgage rates are extremely, attractive, and, thus, home prices, rise, and the overall, real estate market, goes up, in price. Of, course, this depends on other factors, such as: Supply and Demand; inventory; and the overall economy, and job/ employment, conditions! At the present time, we are witnessing, a rate of pricing increases, we have rarely (if, ever), seen, but, partially, some of this, is related to changing perceptions and priorities, after this horrific pandemic! The lower the rates, the less it costs, per hundred – thousand dollars, to pay one’s mortgage, monthly!
3. Credit card use: Issuers of credit cards, often, especially, when interest rates (cost of borrowing) is low, offer, attractive, rates, for using their cards. When people, experience, greater optimism, in the future, they tend to borrow, and use credit cards, more!
4. Personal loans: Since, it costs less, to borrow, when rates are lower, many are more willing to take – out, personal loans! Obviously, when, these rates, eventually, go – up, or, at least, normalize, these things, become less attractive.
5. Bonds, and bank interest rates: For many decades, the typical bank account, paid a fixed interest rate. I remember, this rate, as being, between 4 and 5%, for decades, and then, for a shorter – period, rates going much higher, because of inflation, and other economic conditions! Today’s rates are, historically, lower, and, in – fact, quite, a bit, lower than the cost of living, increases. Obviously, these will change, over – time, but it is dangerous, speculative, and ill – advised, to attempt to market – time!
The more one knows, and understands, why rates matter, and how, it relates to many components, of their lives, the better, the chance of being prepared, and acting, wisely! Will you commit, to trying, to become a more, educated, and committed/ prepared, consumer?