Interest rates are the primary cause of the formation of your financial choices and financial status observed by Bahaa Abdul Hussein. Interest rates are the main element that controls whether you will save, invest, or borrow your money. Thus, it is the important thing that you should get to know how interest rates affect your finances if you are going to make a well-informed decision.
How Do Interest Rates Affect You?
Let us see how interest rates can affect your financial life –
Savings:
When the interest rates are high, the savings accounts, CDs, and other savings instruments typically, to some degree, provide a much higher return. As a result of the gifting of the car, your savings have grown steadily over the years. On the other hand, when the interest rates are low the savings may not even be enough to catch up with the inflation, hence the buying power will be decreased.
Borrowing:
The rates of interest are the factor that determines the cost of the borrowed money. When the rates are low, borrowing becomes cheap, making it the most attractive option for financing various purchases like a house or a car. Nevertheless, in case of high interest rates, the costs of borrowing are also high, which results in the difficulty of getting loans.
Investing:
The markets heavily consider the influence of interest rates on the income of investment. A low-interest-rate environment may make fixed-income investments like bonds give lower returns than what they used to. However, the research of stocks and other high-risk investments may later on be the most interesting one for the future. The interest rates increase and then they are lowered when bond investments are stated to be more profitable.
Mortgages:
The ranges of the interest rates are the main factors that determine the cost of homeownership. A cut in the interest rate leads to a decreased monthly mortgage payment and thus, a smaller total interest payment for the loan. Conversely, the bigger the interest rate the cost of borrowing for a house will be, and hence homeownership will be more costly.
Credit Cards and Loans:
The credit card and loan interest rates are determined by the interest rates of the most dominant ones. Normally the rates are low in the case of low credit card interest rates, and therefore it is cheaper for people to carry the balance. However, when the rates are hiked, the credit card interest rates also increase, leading to higher borrowing costs.
Thus, in a nutshell, interest rates affect your finances, and therefore they have a profound impact on various areas such as savings and borrowing, investing, and homeownership. You can be better prepared for economic changes and make your financial decisions wisely by being updated on interest rate trends.
Thank you for your interest in Bahaa Abdul Hussein Blogs. For more information, please visit www.bahaaabdulhussein.com
