For more than a decade, borrowers have been rewarded, and savers have been punished. With the rapid increase in interest rates starting in 2022, those roles are being reversed.
During the Great Recession of 2008-2009, the Federal Reserve lowered its interest rate from over 5% to near zero. This indirectly influences all rates in the economy, which was just fine if you were buying a car or a home. They became much more affordable.
Rates stayed low until inflation became a problem in 2021. By the time the Fed stepped in, it was a bit behind. In 2022, it raised rates at the fastest pace in history. Now, if you are trying to buy a car at interest rates above 7% or a home above 6.5%, you are feeling the pinch.
On the flip side, the savers that have hardly been receiving any compensation for keeping money in the bank can rejoice. The low-interest rates at banks, credit unions, and investment accounts have finally broken out of the doldrums. Check with your bank, credit union, or online bank to see where you can put your hard-earned money to work.
Investment accounts we manage at SFS are receiving higher yields in the money market. We also see a better opportunity in bonds than we have had in years. The added benefit is diversification, which does not guarantee positive results but helps reduce volatility.
With the recent collapse of Silicon Valley Bank (SVB) and Signal Bank and pressure on the banking industry, people have asked whether they should trust their bank or credit union. The good news is that the vast majority of banks and credit unions will be just fine. In addition, banks have FDIC insurance, and credit unions have NCUA insurance that cover deposits up to $250,000 per registration type (checking, savings, money markets, and CDs).
Interest rates may go a little higher this year, or they may start coming down. It is impossible to know. Regardless, we are glad that savers are finally being rewarded!
Listen to a deep dive into how savers are being rewarded on the Power Up Wealth podcast.
