Currently in the U.S.A we are in a low interest rate environment. This is very advantageous for the American consumer overall, with just a few disadvantages. A few of these advantages and disadvantages will be explained in the next few paragraphs.
What do low interest rates mean for consumers?
Low Mortgage Rates
Mortgage rates continue to decline and they are at the lowest levels for the year at 4.84% for a 30 year fixed mortgage. That means if you own your own home already and have good credit, you can consider refinancing to obtain a lower monthly payment. With rates this low, and home values at more affordable prices than they were a few years ago, it’s also a good time to purchase a home.
Tapping into home equity at this time is a great way to borrow money at inexpensive rates. Of course, if you take money out of your home it is a good idea to use that money wisely. One of the most prudent decisions would be to pay off higher interest rate debts, like credit cards, to lower your overall monthly payments. This would allow you to free up cash each month to save for the future.
Great Time to Buy a Car
The interest rates to buy a car are much lower than previous years, as well. Some lenders have rates under 4%, this is substantially low and results in lower car payments for people who finance the purchase of their vehicles. Also, car prices have stayed flat with a slight decline over the past year, so getting a good deal should be very possible. Now is a good time to “get more car” for your money, or enjoy lower car payments than ever before.
Great Time to Travel
Lower interest rates help inflation to stay low, therefore, cost of goods and services stay low. One commodity most of us use all the time is gasoline for our cars. Since gas is much cheaper we can save money if we plan to take a vacation by car. Generally speaking, airline costs should stay the same or become cheaper as fuel and other costs should stay low as well. During this low interest rate environment you can enjoy more vacation getaways.
Disadvantage – Low Interest Rates on Savings
We discussed many advantages of low interest as it relates to your personal spending. However, when it comes to saving money, do not expect much of a return on your personal savings account at the bank. Interest rates for savings accounts and 1 year certificate of deposits are still under 1%. If you are familiar with the rule of 72, then you know that it takes a 72% return and your money to compound for it to double in value. So if you had a $1,000 in your savings account, at 1% interest it will take 72 years to have $2,000. That is a very long time. Consider shopping interest rates on checking, savings and certificates of deposit at a local community bank. Most times they offer better returns on your money than the big national banks.
Spend Less and Save More
Overall the low interest rate environment is advantageous to the American consumer. This is a great opportunity to spend less and save more. The trade-off is you earn less interest on your savings. However, saving on goods and savings is much better than seeing your budget suffer from the causes of inflation.