Interest Rates

Interest rates are a powerful force in the economy. When the interest rate on your mortgage, or your business loan, or your car loan decreases, it frees more income for you to spend. Lowering interest rates are like a tailwind that help to propel economic growth. Over the last generation, we have witnessed strong, almost uninterrupted lowering of interest rates as inflation has decreased, a very powerful trend of lower, and lower, and lower interest rates, as you can see. As interest rates have now hit a historic low and our economy improves, the question becomes will interest rates move upward, and if so, by how much?

In this global financial world, where money can flow to virtually any country around the world, first, we should look at interest rates of other major countries. Interest rates in the US on 10-year government bonds are now at 2.3%. interest rates in the UK are at 1.25. Interest rates in Germany are at one-third of 1%. believe it or not, interest rates in Japan are at four one-hundredths of 1%. Yes. You heard me correctly. That's four one-hundredths of 1% per year.

To put this in perspective, if you invest $1 million in a Japanese government bond, you can expect the grand total of $400 per year of interest. Wow. Interest rates have virtually collapsed around the world. Believe it or not, US rates today are higher than rates in many other major economies. What's the takeaway? Expect interest rates here in the US to raise a relatively small amount over the next year, but a significant increase in our rates is unlikely, in light of low inflation and even lower interest rates in other countries. Thanks for your confidence in us here at GWP.

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