How Interest Rates Affect You

Greetings all,We are deep into the dog days of summer and we hope you have enjoyed the sunshine and higher temps. We at Bona Fide have been able to enjoy a bit of down time and now we are ready to stay busy for the rest of the year helping our clients succeed in all aspects of their lives. This newsletter will provide you with some context surrounding current interest rates. But first, a word from our sponsor…If you haven’t yet, take a listen to our podcast, The FI Entrepreneur. We just finished Season One and are starting to organize and record Season Two where we will spend more time digging into the how-tos of entrepreneurship and financial independence. We also are planning to interview a number of guests, so if you or someone you know is active in entrepreneurial or financial independence pursuits, please reach out and let us know!
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These days, it is impossible to turn on the TV without being bombarded with news regarding raising interest rates. We want to help cut through the noise with some clear-eyed data to help you understand where interest rates are now, how they relate to historical context, and where they might be headed. This article from Bank Rate provides good context on where interest rates have been. Overall, we are still at a low-interest rate, compared to other points in history. In the 1980s interest rates hit a high of nearly 20%, the highest in history! Then, as now, this was done to combat inflation which was at a high of 14.6%. Compared to those numbers, the current situation doesn’t seem too bad, right? Still, being told things have been and could be worse isn’t much consolation when things are currently feeling bad. Where are we headed? Most analysts are expecting to end the year at around 3.5% which would be an increase of about 1% from where we are now. Beyond that, this article from Reuters shows that the futures funds rate expects interest rates to decline again by Spring of 2023. Of course, all this is contingent upon inflation easing up and beginning to decline back down to the target level of 2%.  Listen – 
If all this interest rate talk sounds a bit Greek to you, then have a listen to the next couple of podcasts offered by the Federal Reserve Bank of St. Louis. The first details the actions of ‘The Fed’ and why they do certain things, like increasing or decreasing interest rates. Collectively, these actions are referred to as the Federal Reserve’s Monetary Policy. If you’d like a bit of a refresher on the intersection of interest rates and inflation, then listen to this episode. It provides a great reminder that if your money is sitting in a low-interest-bearing savings account, then you are actually losing money. This is why we recommend that our clients keep only their necessary emergency funds and other funds for short-term needs in cash. The rest of your money should be out working for you, not wasting away in a savings account. For a deeper dive on all things interest rates, listen to this 45-minute podcast called, “The Scintillating World of Interest Rates” from the Stuff You Should Know podcast.  Watch – 
Our final resources will focus on the intersection of interest rates and mortgage rates. If you are in the market for a new home now or in the near future, you have probably watched with anxiety as first prices soared all over the country and now as mortgage rates have risen. This video with California-based realtor, Jeb Smith, is a nice commentary on whether mortgage rates have peaked or if they will continue to rise. This video, from Yahoo Finance featuring Zillow’s Chief Economist, Skylar Olsen, predicts mortgage rates should stick around the 5.5% range for the near future. If you have plans to purchase a home, this isn’t great news and we may need to do some additional planning to make sure your proposed purchase fits into your budget and other goals. Overall, trying to time the market is something we never recommend so you need to make sure a purchase as large as a home makes sense for you no matter the external factors at play.

Thank you so much for taking the time to read our newsletter. We hope you’ve found some value here. Please reach out if you have any questions or comments. Share this with your friends and family and let us know if you have any topics you’d like us to cover. 

Have a great month and we’ll see you next time!

Best wishes, 

The Bona Fide Family
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