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Interest Rates are Going Up…Is That Good?
[/fusion_text][fusion_text]Pop quiz. Interest rates are going up. Is that good? Yes, as a matter of fact, it is good. First of all, it’s healthy for the economy. From early 2009 to late 2015, the Federal Reserve (the Fed) set interest rates at low levels that should be reserved for emergencies. That made sense in 2009. Now that we are eight years past the worst of that stock market crisis, it is healthy and normal for interest rates to go back up.
How does it affect you? When you lend someone money, you deserve to get paid interest. That includes money sitting in your bank account (or a money market account). For years now we have been receiving pennies on the money we have at our banks. Interest rates going up mean we can start to earn something on these accounts again. Each time the Fed raises rates, we should all start earning more interest.
The same goes for your bond investments over time. The only difference is that you can experience losses in the value of the bonds immediately after interest rate increases. You can manage this risk by owning bonds that mature in 1-7 years, not long-term bonds. Over time, the increased yield on the bonds should more than make up for the short-term drop in value.
But what about your loans? Again, you should be fine. Any debt you expect to owe for more than a few years should be set up at a fixed rate. If it’s not, now is a good time to review it.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.