Financial Moves to Make in a Low Interest Rate Environment

As a bit of a follow up to my article on retirement and low interest rates, I’m going to discuss a few smart money moves to make in a low interest rate environment.  We’ll call these short to mid-range time horizon moves since we are playing on rates.  Rates can and do change, but it isn’t expected that interest rates will move much over the next year at a minimum.

Stocks

Stocks can be a good place to park some money during a low rate environment.  Low rates make FDIC accounts less attractive often causing money will flow into equities.  Specifically, dividend yielding stocks become attractive to investors looking for income.  Seek out companies with a history of consistent payments and increases in dividend yield.  There are also several ETFs that you can invest in that are made up of dividend yielding stocks.  Some of these funds are paying over 5%.

Shop Around for Rates

Your bank may be paying an anemic rate on your money, but that doesn’t mean that all of them are.  A good place to check are the online banks.  Without the expense of operating brick and mortar buildings these banks will often pay higher rates.  Your money is insured the same as a traditional bank, and you can access it with a few clicks on your computer or smartphone.

CDs are paying higher than some savings accounts as well if you don’t mind tying up your money for a period of time.  Again, check out rates at the online institutions.

Real Estate

Real estate can be an attractive investment during low rates.  If you want to own physical properties, then financing deals can work to your advantage.  You can maximize cash flow and returns if you get a low interest rate on your loan.  No interest in owning rentals?  Then, a REIT or crowdfunding real estate can be a place to put some money.  Returns can be high, albeit with more risk.  You will also lose the tax benefits associated with owning physical property, but the returns you will receive will be much higher than you can get in any traditional bank or money market account.

Municipal Bonds

Investing in municipal bonds can yield high returns with lower risk of default than corporate bonds.  Returns may look lower on the surface, but municipal bonds are tax exempt at the Federal and sometimes even the state level.  This means more money in your pocket.

The risk here is a change in rates.  Bonds move in the opposite direction of interest rates.  A rise in rates could lower your return.

Refinance

A low rate environment could be a good time to refinance existing personal debt.  Specifically, your mortgage.  Dropping a few percentage points could save you hundreds of dollars a month.  You may even be able to lessen the term of the loan depending on your situation.

Does refinancing make sense for you?  Run the numbers and find out.  There are countless online calculators to help you decide if it could be a good financial move.

Pay Off Debt

Paying off debt is never a bad idea, but it becomes even more attractive when you are getting a low return on your money.  Why let your money sit in the bank getting a 1% return when you can use it to pay off a loan with a 6% interest rate?  You’re getting an instant return on your money and lessening your debt load in the process.

Summary

A low rate environment like the one we are experiencing now can present challenges to investors and retirees.  But, it can also present opportunities if you know where to look and where to invest your money.  There are countless options to invest your money that will yield a much higher return than you may be getting right now at your traditional bank or credit union.  The proceeding was just a small sampling and hopefully gave you some ideas of where to invest some of your hard-earned money so it can better work for you.  Where are you investing to get a higher return in today’s low interest rate environment?  Share below in the comments.

See Also:

How Low Interest Rates Can Affect Retirement

Dividend Aristocrats 2013: 25+ Years Increasing Dividend Payout

8 Ways To Earn Income When Interest Rates Suck

Want to Refinance Your Mortgage? Lessons Learned from an Average Joe

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