Are You Happy w/ The Low Interest Rates Right Now?

It just occurred to me that I haven’t made much money at ALL on any of my savings or money market accounts I have… Or even checking accts for that matter, though that one is *always* in the $hitter. In fact, I haven’t really blogged about the Fed or its affects on the interest rates since June of ’08!  When we were deciding on whether or not to lock in a fixed rate for our mortgage (thank goodness we didn’t!), and the economy was in full melt down mode… jeesh…

But here we are, 3 and 1/2 years later, and our rates are still frozen at the incredibly low amounts in hopes our economy will once again start looking picking up steam.  And with the Fed announcing the other week that they’re KEEPING it that way for ANOTHER couple years or so (at least ’till the end of 2014), it looks like we won’t be getting back to the hay days of interest-making for quite some time.

But not all is bad, either.  In fact, selfishly speaking I actually PREFER to have these stay super low like that for a few more years!  Because if the interest rates on our savings/checking accounts are super low, it means our DEBT interest rates remain lower too!  At least in the general scheme of things.  And right now, that  means two things for me, personally:

  1. Our 2nd mortgage (a maxed out HELOC) remains at only 2.8%!!!  My 2nd one!  That’s almost 3 percentage points lower than my 1st mortgage which is not supposed to happen! :)  So obviously I’m gonna be a fan of lower rates just purely based on me saving money on interest debt here for the next few years until I pay that bad boy off (25 months to go! Jeesh…).
  2. The second reason I like this a lot is that my credit card rates are insanely low too, stuck at a crazy 6%.  Which is pretty good if I ever wanted to leave any debt on there for an extended amount of time. I won’t be, of course, since I always pay off our credit cards in full each month, but it’s nice to know I won’t be slammed if I make any stupid mistakes down the road or anything ;)

So pros and cons to lower interest rates for sure. (And I’d be singing a different tune too if I had absolutely NO debt and hundreds of thousands stashed away in cds or savings accounts). The scariest part here, though, with all this stuff, is the fact that the Fed STILL doesn’t trust our economy enough to start pumping up the rates at all!  If they’ve just renewed their stance for another 2+ years of non-raising, it means they know a LOT more about what’s going on with our futures than they probably let on (and rightfully so – you don’t want mad mayhem going around if they say the world is falling a part!).  Who knows for sure how drastic, or not, the future economies we live in are deteriorating or anything, but right now it doesn’t look pretty.  Going on only the interest rates, of course ;)

But getting back to our *specific* situations today – how does this non-rate change affect YOU at this moment?  Has it been a GOOD thing for y’all these past few years, or is it really more annoying – personally speaking – since you can’t EARN much money on usual assets like you used to? There’s always pros and cons to all of these kinda things, but I’m hoping you’re taking as much advantage as you can so it all goes MORE into your favor as time goes on  here:)  It’s a damn good time to be financing/re-financing stuff, that’s for sure!

(Photo by  Clearly Ambiguous)

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  1. Sense February 6, 2012 at 6:57 AM

    No! Not happy! :) But that is because I’m debt free and don’t have a house or anything that I’d benefit from having a low interest rate on. I’m selfish that way.

    When I arrived in NZ, interest rates on savings accounts here were 8.35%! I was in HEAVEN!! I mean, that is almost what the stock market averages over 100+ years, and WAY more than it had returned for me for quite a while. And this money was SAFE!

    Now NZ rates are hovering around 3.4%, which is still muy bueno compared to US interest rates. I bet our rate goes down with this news…

    (Taxes are taken out every month, though, so we aren’t building interest on interest at quite the rate you would in the US.)

  2. MikeTheRed February 6, 2012 at 7:14 AM

    I’m in the same boat as Sense: No major debt (one low interest rate car loan… so I guess I’ve benefited a bit by the low rates), no home. And a not insignificant amount of cash sitting in my savings account.

    I totally get what the Fed is trying to do: Make it so that there is little incentive to save a lot of money, and a lot of incentive to get loans for large purchases to spur the economy. Awesome idea in theory except at this rate, there’s going to be a wave of folks who are trained again not to save and instead to get up to their eyeballs in debt.

    Though I guess since my habits aren’t really changing, I’m just putting myself into an increasingly awesome position for when rates do go up (and boy will they after 5+ years of being held artificially low).

    Still, I wouldn’t mind getting a little bit more than 0.8% on my ING account right now..

  3. Elle February 6, 2012 at 7:22 AM

    Not happy that our saving accounts aren’t making more money, but that just means we focus our attention on other goals. Right now the low interest rates are motivation to pay down our debts – a student loan and our mortgage. If the refinance (3.125%) goes through, all extra money will go towards the the student loan.

  4. Christopher February 6, 2012 at 8:31 AM

    Being that we were a single income household until today actually, I was very happy with the low interest rates. We have accumulated some credit card debt and are looking for a personal loan to pay it off and make one consolidated payment, and knock down the credit cards. So I am all for how low can you go!! Additionally we purchased a house a few years back and we got 5.125 and we thought that was great. Seeing what Elle posted makes me want to visit possibly refinancing.

  5. SmartAssetTeam February 6, 2012 at 9:30 AM

    The low interest rates are kind of discouraging for me. I graduated from college not too long ago, and the economy tanked. It has been quite hard to maintain a positive and optimistic outlook when it comes to making a living, being able to save at all, and eventually invest those savings. To be honest, the whole situation feels pretty hopeless, maybe things will turn around soon, but my encounter with the real world and economic responsibility has so far been disillusioning.

  6. Kevin @ February 6, 2012 at 9:43 AM

    I’m not happy with low interest rates for a few reasons, but mainly because it’s destroying our economy and hurting people.

    Think about the seniors who worked their whole lives to save up a little bit of money so they could earn interest on that money during retirement. Instead of letting a free market determine the value of interest they could receive, the government has stripped them of their right to earn any substantial amount of money in a savings account. These people don’t need mortgages and low interest rates; they need a reliable fixed income!

    It is also going to make this recession last for who knows how many years. Low interest rates in a real free market economy are a signal to businesses that people have lots of money saved up in banks and they should invest in expanding their business so people can use their saved money to buy new products. But we all know the average American isn’t sitting around with a huge bank account filled with cash, just waiting to spend it. These fake interest rates are sending bad signals to businesses that they should make more products. So either businesses will make a bunch of stuff that no one can afford to buy, or they will sell a bunch of stuff to people who buy it on credit. Neither one of these situations is good in the long run.

    The fact that the government thinks they are smart enough to steer our economy and manipulate it into something better than it would naturally be is the pretense of knowledge. All the government is doing is creating another bubble that will eventually burst. We will just go from bubbles growing to bubbles bursting over and over again and never actually see real growth.

  7. Brian February 6, 2012 at 10:22 AM

    It’s good and bad for me.

    Good: My student loan interest rate is insanely low.
    Bad: I am making nothing on the old emergency fund.

    If the rates were to increase I would pay off the student loan, but at the moment I am making more with investment opportunities.

  8. Money Beagle February 6, 2012 at 10:22 AM

    Around tax time we definitely have noticed the decrease in our interest income. Used to be over a thousand or two thousand a year, and now it’s around $350 a year with roughly the same balance in the accounts!

  9. Jerret February 6, 2012 at 10:24 AM

    Low rates = much happiness. I’m in the same boat as you, J. In fact, we could swap debts and neither of us would notice. I never planned on getting rich of interest bearing account anyway.

  10. Money Infant February 6, 2012 at 10:37 AM

    The low rates are more of an annoyance than anything. What really gets my goat is the weak dollar. Living overseas is no longer the inexpensive proposition it once was. The drop of the dollar in the past 5 years has equated to a 30% loss in income for me when transferring money to Thailand…major bummer!

  11. Stephanie February 6, 2012 at 11:07 AM

    I have mixed feelings. I’ve benefitted from the low interest rates because I have a mortgage, but I generally don’t carry much credit card debt (maybe a couple hundred dollars over the course of two months about once a year, but 90% of the time I pay my bill in full). I am looking into buying a car later this year and might take out a small loan for that, so low interest rates would benefit me there.

    But on the other hand, my husband and I have a pretty decent amount of cash stashed away in an emergency fund and short-term savings, and it’s infuriating to see how little interest we earn on those. So I guess I wouldn’t hate seeing interest rates go up, but I don’t want them to skyrocket either!

  12. Jennifer Lissette February 6, 2012 at 11:33 AM

    For now I’m glad that interest rates are staying low. I need to refinance my mortgage and will not be able to do so for a year, when we finally get out from underwater after losing 50% of our house’s value. After accomplishing this, I might feel differently.

    Last year I put the bulk of our cash saving into a set of 5 year CDs that only has a 60 day interest penalty. They’re earning 2.5% interest; not a lot compared to the days of yore, but more than 3x the amount I would be earning if I hadn’t made such a move. Even if I had to break the CDs early, the amount of extra interest I’ve earned outweighs the amount I would have to surrender. This also helps me feel okay about the current low interest rate environment.

  13. BE @ BusyExecutiveMoneyBlog February 6, 2012 at 11:39 AM

    I have been struggling with this too. Particularly as i grow more conservative in my investment philosophy. One of the things, I’m planning to have in place is a good deal of liquidity. I believe rates must go up eventually. i want to be there with cash in hand to construct a fantastic cd ladder that will provide strong income and be completely passive.

  14. LB February 6, 2012 at 11:44 AM

    Not happy, but don’t care too much right now.

    Not happy: because I want to earn interest on my money like everyone else!
    Don’t Care: because a lot of my money is going towards school and things of that nature, so come tax time, hopefully it will benefit me more then if I was making a lot in interest.

  15. D February 6, 2012 at 12:02 PM

    Just as a side note for everyone saying “I’m not earning interest anymore” my next sentence may shock you. I say “GOOD”, I’m glad I’m not earning interest anymore. I want to earn dividends, not interest. Interest is taxed at your marginal tax rate, dividends are taxed at 15%. I don’t know about you, but I’d rather pay 15% than my marginal tax rate (30+%).

    Ok, flame away :)

    Pulled this off the web (has to be true then – hehe)

    * Interest is taxable as ordinary income, and that leads to a tricky item. You may receive payments from savings banks and credit unions that are called “dividends,” but they don’t qualify for the lower rate. These earnings are taxable as ordinary income.
    * Mutual funds are able to pass through qualified dividends to you, which are eligible for the favorable rate. But interest or short-term capital gains that are distributed to you by a mutual fund don’t qualify for favorable treatment.
    * The interest you receive from bank accounts and loans you’ve made to other people is taxable as ordinary income.
    * Interest income from Treasury bills, notes, or bonds is subject to federal income tax, but exempt from all state and local income taxes. With a Treasury bill, the interest income is the difference between the discounted price you paid for the investment and the face value you receive at maturity. You report the interest income when the bill is paid at maturity. Both Treasury notes and bonds generally pay interest every six months. This interest is reported for the year paid.
    * The interest on zero coupon bonds or any original issue discount debt instrument (the interest is the difference between the issue price and its stated redemption price at maturity) is includable in your income as it accrues over time, whether or not you receive any payments from the issuer. It’s taxed at ordinary income rates.

  16. Edward Antrobus February 6, 2012 at 12:18 PM

    Since we are getting a mortgage in a couple months, I’m very happy that rates are so low right now. But once our rate is locked in, it doesn’t really affect me what rates do after that. My student loans and remaining credit card debt (and the wife’s car loan) have fixed rates, so rates going up in the future won’t hurt my debt repayment schedule. Since I’m in debt payment mode, I don’t have a ton of savings right now, so interest rates don’t do a lot for me there either.

  17. Jen February 6, 2012 at 12:18 PM

    I’m glad interest rates are low (and will remain low for a while) because my student loan balance is still gigantic. Right now my loans are hovering at around 2.75% and 3.75% – when I signed for them in college they were around 7 or 8%.

    The low rate means I have 3 years (all of 2012, all of 2013, and most of 2014) to pay off as much as I possibly can before rates rise again.

  18. Jeff February 6, 2012 at 1:09 PM

    Low rates are a nightmare. It is impossible to keep up with inflation without taking on risk via stocks or bonds (which I imagine is one of the reasons the Fed is holding rates so low).

    What irks me most is when CD’s I opened back in 2007 or 2008 mature and I have to put money that had earned 3-5% into somethat that either earns 1% for a year or into a risky vehicle that has me checking my portfolio 4 times a day.

  19. Cassie February 6, 2012 at 1:45 PM

    At this exact moment in time, I’m happy about the lower interest rates. I’m working on clearing the last of my consumer debt, which is currently a variable interest rate. After that, I have my mortgage to consider. Even though I spent a good $50,000 less than I was preapproved for, I’m still in the tight for money zone. Not good. I know it’s selfish and doesn’t help the economy at all, but I hope that the low rates hold out until I renew my mortgage in a few years. I’d like to attack my mortgage, and have as little of the balance go to interest as possible.

  20. Brent Pittman February 6, 2012 at 1:47 PM

    Like many others out of debt and a long way off from 20% down for house…low rates stink for interest, but gives us hope that we could possibly own a house someday.

  21. Kris @ SimpleIslandLiving February 6, 2012 at 2:01 PM

    I’m not terribly happy with it – bad timing for us because we have all of our money liquid and no debt – but not enough to buy a house with. In Hawaii a small 3 bed house would cost upwards of $600K+…money we definitely don’t have. And we can’t refinance our rental property because we haven’t paid off 50% of its worth yet.
    But then, I think of all things working out in the end.

  22. Ten Bob Millionaire February 6, 2012 at 2:24 PM

    I’m not happy about the pathetic interest rates on my meager (right now at least ;) ) savings but my remaining credit card debt continues to say God bless USAA and a low 6.9%.

  23. retirebyforty February 6, 2012 at 2:39 PM

    I’m happy that my mortgages are all locked in at these low rates. In 10 years, who knows where the rates will be.

    I’m not happy that my cash is earning bupkis in the saving account. I guess you can’t have everything.

  24. Kristin February 6, 2012 at 4:29 PM

    Absolutely no debt and several years off from a house and/or car purchase, so the low rates are a real pain. I do an auto-transfer into my ING Direct savings account each pay period and haven’t touched that balance, but the amount of interest I earn each month goes down on the growing balance because they keep inching down the interest rates. The volatility over the last several months in the stock market makes me nervous.

    I remember reading a PF book for kids when I was 8 or 9 and I was always so excited to get my passbook for my local bank savings account stamped to see how much interest I was earning. The idea that a bank wanted my money, and would pay me for the privilege of keeping it with them, was cool! However I read an article a few months ago that said that banks are so flush with deposits from all the nervous investors that they can’t make any money off of them with treasury bonds so low, that they will *lower* their interest rates so that they don’t get stuck paying interest that they can’t make up in revenue. Seems like everything’s all backwards to me.

  25. Kristin February 6, 2012 at 4:32 PM

    Sorry, meaning that they will lower their interest rates to make people take their deposits somewhere else.

  26. J. Money February 6, 2012 at 5:21 PM

    @Sense – Wowwww 8.35%?? That must have been real nice! And 3.4% ain’t too bad either in comparison to here in the States ;)
    @MikeTheRed – I know, it’s a pretty stupid situation to be in. I hear people saying all the time that they need to spend money to help the economy but that’s what got us in the trouble to begin with :( While I ofcourse wish for things to get better overall as a whole, I’ll always be promoting saving as much as you can and making sure YOU are as OK as possible. If you don’t look out for yourself, who will?
    @Elle – Good for you! A 3% refi would be incredible! Could you send some positive thoughts this way too? So I can get rid of our 5.5%? :)
    @Christopher – Yup! It’s a perfect time to take advantage of it all while we can! It’s certainly not gonna remain low forever :)
    @SmartAssetTeam – That’s really sucky to hear, I’m sorry :( I do believe we’re always going through phases in life though, and once this one gets better it’ll be a nice phase for a while until it gets bad again ;) It was a nasty economy when I left college as well, but after a while it got better and you just adjust as best you can throughout it all. In theory you’re making the least amount of money you ever will for the rest of your life, so think about that to make you feel better! Haha… you should always be going up from here :)
    @Kevin @ – Well, that’s one opinion of it all for sure ;) I don’t know enough to argue with you one way or the other, but I will agree that it is hurting those about to retire for sure. And those in retirement as well :( That’s the really shitty part about it all (besides those unemployed, etc). There are tons of problems with the economy right now, but also tons of opportunity as well for others. I’m sure not too far off in the future we’ll be blogging about how crazy high the interest rate is and all that’s bad because of it too ;)
    @Brian – You’re playing the game to your advantage, it’s smart!
    @Money Beagle – Wow, that’s pretty significant!
    @Jerret – Haha, that’s pretty cool ;) And I agree on the interest, mine never used to accumulate much either ;)
    @Money Infant – Sucky!! I didn’t even think of that, man, good info to bring up. I hope things get better for you over there! :)
    @Stephanie – Yeah, it’s never good 100% one way or the other ;)
    @Jennifer Lissette – Wow 50% is no joke! Sorry to hear :( Def. smart on the CD route though, I should probably do that with my bulk savings as well, as it’s not getting anything NEAR that… I hope you get that refi in too!! That would help out :)
    @BE @ BusyExecutiveMoneyBlog – Oooh there you go! It’s always good to be ready to jump on opportunities as they come up, I like it :)
    @LB – I hope so too :)
    @D – Haha, I take all kinds of money so I’d be nice and happy with more dividends too ;)
    @Edward Antrobus – I hope you two find your dream home brother! Keep me updated, okay?
    @Jen – Yeah!! Pay it off baby, you’ll be sooooo much better off in the future – woo!
    @Jeff – Or into good mutual funds/stocks ;) Though obviously still risky.
    @Cassie – I don’t think it’s selfish because there’s nothing you can do about it anyways ;) You’d have plenty of other things to take advantage of too even with the rates going up! So I think as long as you’re always doing that – making the best of any situation – you’re on the right path. There’s nothing wrong making sure #1 is being taken care of – you have to have your own back! :)
    @Brent Pittman – Yup! That’s a def. pro to the current situation – gives lots of people a different kind of opportunity.
    @Kris @ SimpleIslandLiving – Woahhh $600K?? Man. I knew it was expensive but jeez…
    @Ten Bob Millionaire – Haha, amen to that! USAA is totally taking care of us right now ;)
    @retirebyforty – Yep! Take advantage of what you can, and do your best to limit all of the cons.
    @Kristin – Geeeez, isn’t that something? I remember checking my kids’ book too to see how much more money I had accumulated growing up – was so much fun!! :) And honestly, still is! Haha.. just now w/ the internet ;)

  27. AverageJoe February 6, 2012 at 6:35 PM

    We moved to our current location a couple years ago and have an adjustable mortgage, so I’m diggin’ it, dude! BUT as soon as I lock in, I want rates to skyrocket so I get some good interest on my savings.

    Once again…I want the world to just revolve around “my” goals.

  28. jesse.anne.o February 6, 2012 at 7:13 PM

    Not so crazy about it. I have no debt and I’m not in a position to buy real estate right now.

    I have no use for the low interest fees and most of my assets are liquid right now so it’s not doing me any favors.

    I still haven’t quite figured out how much I would like to keep liquid and how much should be invested. I have two emergency funds (mine, the cats’) and then a down payment account that won’t get touched any time soon. That’s probably what should be invested…but I don’t feel comfortable doing that until it’s at a $10k mark (and investing anything above and beyond that $10k). I don’t know why. It’s a pretty weird mental block.

  29. Earn Save Live February 7, 2012 at 6:27 AM

    As an American living in Australia, it’s a mixed bag right now. Our investment properties in the US carry a 5% (fixed) mortgage, a 3% (variable) mortgage, and a 6.8% HELOC; we’re not able to refinance since we don’t have enough equity.

    In Australia, our savings account has a 6% return. (Yes, you read that right! It’s the UBank account, if you want to check it out). We’re renting here now, but mortgage rates are several percentage points higher than in the States. The Aussie dollar is strong though, so we’re snowballing all debt this year and we’ll re-assess where we’re at with everything at the end of 2012.

  30. Laura Vanderkam February 8, 2012 at 5:13 PM

    We refinanced our mortgage — not too long after buying the house, actually — because interest rates had dropped so low. So that freed up some cash. Of course, the ridiculously low rates of return in many investment vehicles take some of the wind out of my sails on that. I had a CD I got years ago that I keep rolling over and they keep knocking down the interest rate each time. Earning 12% in about 6 years is nothing to write home about.

  31. eemusings February 9, 2012 at 6:16 AM

    No way! I don’t have any debt, so my savings aren’t making all that much – and no way will we be taking out a mortgage anytime soon because prices are way beyond our reach. Boo low interest rates.

  32. J. Money February 9, 2012 at 11:47 AM

    @AverageJoe – Haha, you and me both ;) You’ll be saving a butt ton w/ that adjustable though for a bit!! That’s gotta feel good!
    @jesse.anne.o – Hey, we all have our own “blocks” like that – it’s all good :) Better to have them than none! That’s when people can get in trouble, haha… I think the bets thing we can do is follow our hearts and brains when it comes to money stuff, as well as others. If we can stay true to that, we’ll feel pretty good in our lives – even if it’s different than what the others say. It’s YOUR life, you rock it yo!
    @Earn Save Live – That’s no joke!! I wonder if we (in America) can invest savings over there?? You think tha’s allowed or something would block that?
    @Laura Vanderkam – Yep – pros and cons to both sides. At least you lowered that mortgage though, that’s a biggie! I’d love to be able to do it again myself soon, but we’ll see.
    @eemusings – Yeah, you get the short end of that stick I’m afraid, sorry! :(

  33. StackingCash February 9, 2012 at 12:09 PM

    I cannot believe I missed this post! :( Anyhow, I’m probably one of the biggest losers in this department because everyone knows I depend on savings accounts. I do believe I have one of the best savings accounts out there, Costco’s Capital One InterestPlus Online Savings. I also took advantage of Chase’s two offers of $125 and $150 to open a checking and savings account with them :)

    On the other note, I’m kinda looking for a new home and would benefit from low interest rate mortgage…

  34. J. Money February 10, 2012 at 3:23 PM

    Haha, it’s all good – one of these days the rates will go way up again :) And hopefully after you pick up a new home!