Why Are Interest Rates So Low?

3
May

Why Are Interest Rates So Low?

There’s no denying that the Coronavirus pandemic has led to economic decline and uncertainty. As a result, the Federal Reserve has lowered interest rates.

Rates will likely remain low until the end of 2023 as our economy recovers.  So what’s the purpose of declining interest rates? The lowering of interest rates by The Fed intends to promote economic growth during these difficult times.

Here’s the theory behind the Fed’s decision: Low rates make it cheaper to borrow and encourage people to spend more instead of keeping their money in savings accounts. Declining rates help businesses and further supports the economy. In reality, however, many Americans are continuing to save in preparation of future economic hardships, especially if their job situation is unstable. If you have retirement assets that are tied to earnings dependent on interest rates, consider a fixed-indexed annuity as an asset class in your retirement portfolio.

If you’re a saver or are starting to become one, here are some tips to help during this era of low-interest rates:

Continue to Focus on Your Savings Goals

Just because rates are near zero doesn’t mean you should forgo your savings and retirement strategy. Regardless of what’s happening in the economy, saving for emergencies and retirement are important priorities. Keep on saving, and don’t let low rates stop you.

Consider adding a Fixed-Indexed Annuity to Your Retirement Portfolio

Fixed-indexed annuities are an alternative to consider for retirees seeking income and safety. Annuities are backed by the claims-paying ability of the insurance company issuing them. Once thought of as only a standalone retirement income solution, annuities are now commonly recognized as one of many components of a retirement portfolio. Fixed-Indexed Annuities offer the benefit of growth through an index, and provide growth during a low-interest rate environment.

Use a High-Yield Savings Account

A high-yield savings account is one way to help increase your savings with minimal effort. Even though low interest rates mean low rates on high-yield savings accounts, saving is still a good idea. When interest rates increase, you’ll have saved more money than if you had your cash in a traditional savings account. Plus, you may eventually lock in a higher Annual Percentage Rate (APR).

Refinance Your Mortgage and Student Loans

If you have a mortgage and or student loan debt, you may save on interest by refinancing these debts. Depending on your credit, how much you owe, and how long you have held your mortgage or student loans, a refinance may save you thousands of dollars in interest over time and help you pay off your debt faster.

Consolidate Credit Card Debt

A low-interest-rate environment is a great time to consolidate your high-interest rate credit card debt and save on interest. To do so, you may want to consider taking out a personal loan with a low-interest rate or use a balance transfer card with a 0% APR for a set promotional period. Visit with your financial professional to determine the strategy that is best for you.

Consult Your Financial Professional

Together we can review your financial situation and develop a strategy for your unique goals while interest rates are low. Contact us today.

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Disclosures

An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information.  This is not a comprehensive review of all features and benefits. All the material details of this product should be reviewed prior to making a purchase decision.

The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website

In addition, we specialize in providing strategies and guidance for those who are seeking a better lifestyle in retirement. At LKN Financial, we know that it is your retirement, and you should have control over it. We offer our experience and knowledge to help you design a custom strategy for financial independence. In conclusion, contact us today to schedule an introductory meeting!