Interest rates are a tricky topic. There are interest rates you get charged when you borrow money, and there are interest rates you receive when you deposit money. Unfortunately the interest rates paid by a consumer are considerably higher than the ones he receives. Most of the time in order to figure out the actual interest you will pay or will be paid to you, you need the “secret” formula, because it is not simply multiplying the amount of money by the percentage rate. Some affects of interest rates are simple to understand, though. For instance, the lower the rate on your investments, the less you make.
So what makes interest rates become low? Finances in a country are affected directly by the current economy and unemployment rates. Lately both in this country are in bad shape. Thus, interest rates being paid on investments are very low, sometimes even below 1%. When banks and financial markets have less money on deposit and are giving out fewer loans, they have less to give back to their customers. The stock and currency markets handle their money in much the same way. Basically, in a bad economy, investment funds yield much less interest income leaving people to wonder ask will interest rates go up anytime soon?
For most of us our daily jobs are what we depend upon for income. For many others, though, especially retired individuals, income comes completely from investments. This can be savings accounts, retirement funds or stock market deposits. If money market interest rates or CD rates go down to low levels like they are now, the monthly interest amount drops a substantial amount as well. If interest income is what you rely on to survive financially, lowering interest rates is like getting a big drop in your hourly pay.
If you have money invested, you should understand how interest rates work and the risks you may be taking. Hopefully in the healthy economic times your surplus helps you through the rougher times. Sometimes it can take a weak economy quite some time to turn around and this can takes its toll on the investor who relies on interest income to survive financially.