Over the past few years, interest rates have been slowly rising, with the Federal Reserve raising the federal funds rate several times. This has had a significant impact on interest-paying investments, as well as on the broader economy. One of the main reasons interest rates have been rising is due to the strong performance of the U.S. economy in recent years. As the economy has grown, inflation has started to tick up, which has put pressure on the Federal Reserve to raise interest rates in order to keep inflation in check.
Higher interest rates can have both positive and negative effects on the economy. On the positive side, higher interest rates can help to curb inflation by making it more expensive to borrow money. This can help to slow down economic growth and prevent the economy from overheating. On the negative side, higher interest rates can make it more expensive for businesses and individuals to borrow money. This can make it harder for businesses to invest in new projects or for individuals to buy homes or cars. Higher interest rates can also reduce the value of existing investments, as the income generated by those investments may not keep pace with inflation.
For investors, the rise in interest rates has led to higher yields on interest-paying investments like bonds and CDs. This has made these investments more attractive to investors, especially those who are looking for a reliable income source. However, it’s important to note that higher interest rates also mean higher borrowing costs for companies, which can lead to lower profits and potentially lower stock prices. When looking at different interest-bearing investments, the list often includes some of the following options:
▸ Corporate Bonds and Government Bonds – Corporate bonds are similar to government bonds in that they are a type of debt instrument, but they differ in who issues them. Corporate bonds typically pay a higher yield than government bonds, but they also carry more risk, as the creditworthiness of the issuer can vary widely.
▸ Preferred Stocks – This type of stock pays a fixed dividend to investors. They are similar to bonds in that they provide a fixed income stream, but they are also riskier than bonds, as the value of the stock can fluctuate based on market conditions.
▸ Real Estate Investment Trusts (REITs) – These are companies that own and manage real estate properties. They are required by law to distribute at least 90% of their taxable income to investors in the form of dividends. REITs can provide a reliable source of income to investors who are looking for exposure to the real estate market.
▸ High-Yield Savings Accounts –
This type of savings account pays a higher interest rate than traditional savings accounts. They are typically offered by online banks and credit unions and can be a more conservative investment and reliable income source for investors who are looking to keep their money in cash.
In general, the rise in interest rates over the past year has reflected a strong and growing economy. While higher interest rates may make it more expensive to borrow money, they also provide a valuable source of income for investors who are looking to build wealth over the long term. As with any investment, it’s important to do your research and understand the risks and benefits before investing in interest-paying investments.
Securities products and services made available through AE Financial Services, LLC (AEFS), member FINRA/SIPC. Investment advisory products and services made available through OLV Investments Group. 2812225-4/23