The Lowest Interest Rate of Our Lifetime
I was in the bank and their posted 10 yr CD (certificate of deposit) low interest rate was only 1.01% I can’t imagine anyone locking up their money for ten years for this low interest rate. This low interest rate environment we live in was never predicted by any prognosticator. The huge government deficit and debt forces the Fed to keep low interest rates around for a long time to come, because we can’t afford to pay the interest on the public debt.
This Low Interest Rate is Tough on Savers
Savings accounts are paying such a low interest rate that it has no impact on your personal wealth building plans. Money Market accounts and CD’s have traditionally been a safe place to get a return on your money without worry of loss, but today’s low interest rate will not even keep up with inflation. Many of my clients tell me of how they use to take the 5% or 6% return on their CD money and spend it on vacations or a home improvement project each year. Over the past few years they have not received this income and they are not taking vacations or they are dipping into their savings nest egg.
Bonds are Risky in a Low Interest Rate Environment
Many people are buying bonds to receive a higher return. Over the decade a lot of money has been made in bonds, because as interest rates plummeted bond values soared. Interest rates can’t get much lower being as close to zero as these low interest rates already are, but a slight increase in rates will hurt bond values making bonds a risky investment. Bond traders have been on quite a ride and I don’t hear Wall Street warning about the coming bond crash as interest rates inevitably inch upward.
This bizzare low interest rate environment requires a new kind of thinking for safe low risk returns.