For the past decade, interest rates have been at their lowest. When the great recession hit the world in 2008, they plummeted to zero and there they stayed for a very long seven years. Now, for the first time in a very long time, interest rates are on the rise. But what does that mean for you and your saving accounts?
Interest Rates Are On the Rise
Interest rates fluctuate according to the federal funds’ target rate. This is the rate at which a bank can borrow money from another bank and it is set by the Federal Reserve in the US, the Bank of Canada in Canada, and the Reserve Bank of Australia in Australia. This is a global issue, as the world’s economy is intertwined at a very deep level.
Prior to the great recession, interest rates have ranged from 1% to 19%, but in 2008, they hit zero. Central banks have maintained these rates for as long as seven years to allow smaller banks to give out loans to companies and individual customers.
This has allowed the economy to continue developing throughout the recession and create jobs for people all over the world. Loans have been easier to get during this period, which has had people spending and investing a lot of money.
It wasn’t until 2016 when interest rates have begun rising slowly. Now, as 2019 begins, they have reached approximately 2%, which opens new doors for people looking to set up personal accounts and save some money. In the past decade, the economy has been focused on investments and growth, but the future is aimed at putting some money aside.
Increasing Interest Rates Was An Inevitable Step
Throughout the years when interest rates were kept at their lowest, consumers were encouraged to spend money. Loans were given out easily and people and companies have invested capital. This has increased employment rates, as well as the demand for services and goods, which has led to a good time for economic development.
Unfortunately, this could not be maintained forever. As low-rate-powered development has been increasing exponentially over the years, it has made central banks call in the alarm to avoid inflation. This is the main reason why interest rates are still growing in 2019.
The Good News About Rising Interest Rates
The rise of interest rates is setting up a good time for making investments. Since it will be more difficult for companies to borrow money, they will have to cut costs and slow down their development. This will make the stock market experience weaker performance for the moment. As for the bond market, this will bring out quite a few opportunities for new investors.
While old bonds for a company will be less profitable, new bonds for the same company will offer better rates for new investors. This makes it a very good time to put in your money into company investments. In fact, banks all over the world will support these small investments.
Another important offer that banks all over the world are making at the moment is higher interest for savings accounts. As the Federal Reserve sets up higher interest rates, term deposits in Australia, Canada, and all over the world are now more advantageous for consumers.
For the first time in a long time, saving money looks like a profitable solution for consumers. This gives you the opportunity to make an investment, should the opportunity arise, but also build a safety net for these tumultuous times in the economy. In the years to come, these changes will span out to build a steady future, but having some money to rely on will absolutely pay off.
The Bad News About Rising Interest Rates
As interest rates rise, borrowing money is becoming more expensive. This might cause companies to cut down their costs, which may lead to a minor decrease in employment rates in the next few years. This will also make consumer loans such as mortgages more expensive and more difficult to get.
As for those who already have loans set up, it all depends on the terms they were made on. While loans with fixed rates will not be affected, those with variable rates will have people paying more money on a monthly basis.