Today's Low Interest Rates
Interest rates are at historic lows. In many cases, savings account rates and short term certificates of deposit rates are below 1%. Rates for borrowing, such as for long term mortgages are also levels not seen for many decades. What these low rates mean and how to react to them are questions we are all facing.
rates into a longer term perspective
This first chart begins in 1980 and demonstrates how rates for shorter and longer term US Treasury securities have been trending down over those 34 years. While they are not totally in lockstep in that downward trend, the yields on both have fallen from about 12% to less than 2%. Note that rates have moved up recently, especially with the longer term 10 year maturity.
This chart just represents the last 14 years and notice that while rates on two year and ten year securities have fallen, they have not moved in lockstep. At the beginning of 2002, both had yields of around 6.5%. As of September, 2012, the yield on a ten year maturity security was about 2.75% and a two year security was yielding less than 0.3%. Note that rates have moved up recently, especially with the longer term 10 year maturity.
How this has happened?
How long will low
How should you
deal with these low interest rates?
Second, if you are looking for interest income, be cautious. The only ways to earn higher rates are to invest in things that have higher levels of risk or to lockup your funds in vehicles that have longer maturities.
Finally, use common
sense. If someone tries to sell you an investment that looks too good
to be true, it may very well be a scam to avoid.