Here’s something that may pique your
interest.
The U.S. economy has been strong,
unemployment is low, and the Federal Reserve has been raising its benchmark
rate while signaling more increases to come. As a consequence, consumer
interest rates have been rising.
That’s good news for savers, who have
been earning insultingly low returns on savings accounts for years, but it’s
bad news for home-shoppers and borrowers — particularly people with adjustable-
and variable-rate loans.
For savers, and
particularly for retirees who don’t want to risk their nest eggs in the stock
market, the post-recession years have been marked by banks offering
close-to-zero interest rates on savings. It’s hardly been worth shopping around
for the best deal, until this year.
Banks, which benefit from higher
interest rates, have been running more advertisements and even some promotions
to attract deposits, so that they’ll be able to lend more money at higher
rates.
While some traditional banks and
credit unions are still offering fraction-of-a-percent interest rates on
savings, there are others — online-only banks in particular — paying close to 2
percent interest on plain-vanilla savings accounts.
Earning 2 percent on your savings
isn’t really that much, particularly if you don’t have much money on which to
earn interest, but it’s more than before and every bit helps. With banks
offering incentives for new accounts, some people could get as much money from
switching banks as they might from a year’s worth of interest, so consider
shopping around.
If you are bank-shopping, make sure
to look at all of the interest rates, because they aren’t always what you might
expect. For example, online-only bank Capital One 360 is paying 1 percent
interest on savings and 1.85 percent on money market accounts, while rival Ally
is advertising 1.9 percent on savings accounts and 1 percent or less on money
markets.
For longer-term savings, such as
certificates of deposit, remember that the Fed expects rates to keep rising.
It’s easy to find 12-month CDs that pay 2.5 percent interest now, but longer-term
CDs aren’t paying much more than that. Locking up some money in a 5-year CD
paying 3 percent interest might not look great a few years from now.
But some certificates of deposit, for terms longer
than one year, will allow for one or more rate resets and that’s worth
considering. Sometimes, those CDs pay lower interest initially, in exchange for
being able to reset the rate later, but it’s an attractive feature if the
initial interest rate is competitive.
Higher interest
rates are also forcing home shoppers to factor in higher monthly mortgage
payments, with the likelihood that rates will keep increasing as the Federal
Reserve raises interest rates to keep the economy from overheating. Higher
borrowing costs potentially slow the real estate market, depressing asking
prices, but for now in the greater Charleston area all the latest statistics
indicate it’s firmly a seller’s market.
A year ago, the average 30-year
mortgage rate was slightly below 4 percent. Now, it’s are close to 5 percent.
That doesn’t sound like a lot, but it’s enough to add $118 each month to the
payment on a $200,000 loan.
According to Realtor.com, about a
quarter of the homes for sale in Charleston County are being offered at reduced
prices, but sellers in September were getting, on average, 95.6 percent of
original asking prices for single-family homes, according to the
Charleston Trident Association of Realtors.
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