Safe Money Mindset Newsletter: Understanding the Basics of Interest Rates
Jeff Perry
Partner at Quest Commonwealth | Author, "Safe Money Mindset" | Co-Host of "Safe Money Mindset" TV Show | Defender of Wealth: Championing Holistic Wealth Preservation and Retirement Planning
Welcome back to the Safe Money Mindset Newsletter!
I know, you're probably thinking, "Interest rates? I’ve got the basics covered." But humor me here—let’s make sure we’re on the same page, because this will lay the foundation for everything we’ll discuss in this series.
What Exactly Are Interest Rates? (And Why Do They Matter?)
Interest rates are the cost of borrowing or the reward for lending money. Think about it like this: if you borrow money (for a car, house, etc.), you’re charged an interest rate for the privilege of using someone else’s funds. Alternatively, if you lend your money by putting it in a savings account or buying bonds, you're earning interest—basically, you’re being paid for letting others use your money.
Why Should You Care?
Interest rates matter because they affect your everyday financial decisions—your mortgage, credit card interest, and even how much you earn on savings. Most people understand that when interest rates are low, borrowing is cheaper, allowing you to save on car loans and mortgages. However, the opportunity for gains on safe investments is also lower, meaning you may need to take on more risk with your investments to combat inflation—which, ironically, can rise during a low-interest rate environment, further eroding the value of your savings.
The Federal Reserve’s Role: Setting the Stage
The Federal Reserve, often called the Fed, adjusts interest rates to control economic growth. If inflation gets too high, they might increase rates to cool things down by making borrowing more expensive. On the other hand, if they want to encourage spending and borrowing (like after a recession), they might lower rates to stimulate the economy. What they do affects just about every financial decision you make—even if it’s not immediately obvious.
Next Week
How do interest rates impact your savings and investments? From certificates of deposit (CDs) to bonds, we’ll explore how fluctuating rates can either benefit or hurt your financial goals. Subscribe to have these delivered directly to your inbox as soon as they are released!
Warmly,
领英推荐
Jeff Perry
Partner, Quest Commonwealth
Co-Host of "Safe Money Mindset" on WXYZ-TV ABC Detroit
Weekly Tip
Don’t let interest rates just be background noise. Whether rates are high or low, there’s always a strategy to maximize your financial benefits. If you need help determining what this means for your financial situation, contact our experts at Quest Commonwealth!
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