There’s good news and bad news with today’s economy and the low interest rates that continue to hover at historical lows. If your savings account is your investment vehicle of choice, the near zero interest rates are bad news for you. The Federal Reserve is keeping short-term interest rates near zero through 2014, which may result in still lower interest rates – close to 0% over the next 12 to 18 months, analysts say. The current rates are good news for those ready to take advantage of them by buying or refinancing a home or making other purchases such as a new car. A recent MSN Money article offered the following tips on smart moves now:
1. Buy a home or rental property
While go-go lending is partly to blame for the economy's current financial troubles, ironically, borrowing money may help ease the country out of the downturn. At least that's the thinking behind the Federal Reserve's recent pledge to keep low interest rates into 2013. Average rates for 30-year fixed-rate mortgages, home equity loans and even 60-month new-car loans are hovering around 4.2 percent, 6.6 percent and 5.2 percent, respectively, according to Bankrate's most recent weekly survey of interest rates.
2. Refinance your home
If you want to get out from under an adjustable-rate mortgage — and you aren't upside down on the loan — now is a good time to switch to a fixed-rate mortgage. While you're at it, look into refinancing your 30-year mortgage into a 15-year loan so you don't inadvertently add many years of interest payments to your mortgage.
3. Buy a car
If you're in the market for a new car, now may be the time to trade in your clunker. Car loans aren't as rock-bottom as mortgage loans, but manufacturers are offering plenty of incentives, such as special financing options.
4. Give money away
Low interest rates make it easier to be generous and charitable. Low rates and poor economic conditions, combined with a massive intergenerational wealth transfer and looming estate, gift and income tax hikes create a prime opportunity to give, borrow, move money, and be charitable.
5. Review investments
Make sure your portfolio is diverse to minimize your risk. Talk to your financial adviser about alternatives to savings accounts and money market funds, asking for options that earn better returns on your savings. Also, be wary of buying investment vehicles such as bonds when interest rates are low.
6. Lock in student loan rates
Federal student loan rates are usually low, but even they have taken a slight dip in this low-interest environment. If you have more than one student loan outstanding, check with your federal student loan provider on how to consolidate and lock in at a lower interest rate.
7. Pay off credit card debt
While mortgage and car loans have favorable interest rates, the same is not true for borrowing money on your credit card. Work on reducing or eliminating this debt. If you have a choice of putting money into a savings account or paying off debt, pay off the high-interest credit card debt first because financial institutions are paying very little interest in savings accounts.
Hank Didier is co-founder of Vantage Capital Consultants, a purchaser of structured settlements.