{"id":8241,"date":"2019-09-19T20:06:49","date_gmt":"2019-09-19T20:06:49","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8241"},"modified":"2022-02-26T13:07:11","modified_gmt":"2022-02-26T13:07:11","slug":"what-happens-if-interest-rates-go-to-zero","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/what-happens-if-interest-rates-go-to-zero\/","title":{"rendered":"What happens if interest rates go to zero?"},"content":{"rendered":"\n

Sarah and Damon S. from Fort Wayne, IN write<\/em>: Hi Mitch, my\nhusband and I are wondering what will happen to our savings accounts if\ninterest rates go below zero. These savings accounts pay so little as it is,\nI\u2019m wondering if there will even be any interest left to earn. <\/p>\n\n\n\n

Mitch\u2019s Response: <\/strong>Thanks for writing Sarah and Damon — you pose a\ngreat question that I\u2019m sure many other readers and investors are wondering\nabout. <\/p>\n\n\n\n

In an effort to boost the economy into a sustained recovery,\ninterest rates have been ultra-low since the 2008 financial crisis. It\u2019s only\nbeen in recent years that the Federal Reserve has taken steps to incrementally\n\u201cnormalize\u201d interest rates by raising the discount rate. Some readers may have\nnoticed that as the Fed has been raising interest rates, deposit rates at banks\nhave also started to slowly <\/em>creep higher.<\/p>\n\n\n\n

But as you pointed out, the interest rate story is changing again.\nGlobal economic growth projections are weakening as the U.S. and Chinese\neconomies continue to square off in a trade war, and central banks across the\nworld are responding with lower interest rates and renewed plans for monetary\nstimulus. If interest rates return to near-zero levels, retirees and savers can\npretty much forget about earning risk-free returns that outpace\ninflation. <\/p>\n\n\n\n

_____________________________________________________________________________<\/p>\n\n\n\n

Is Now the Right Time to Invest? Get Our Answer!<\/a><\/strong><\/p>\n\n\n\n

The market has been volatile over the last year and this\nweek has been no exception with heightened volatility. From rate cuts to trade\ndisputes and trade war updates, there are many reasons why the market is\njittery. <\/p>\n\n\n\n

With all this going on, you may be wondering if now is a\ngood time to invest…or would it be better to wait a few months and see if\nthings settle down.<\/p>\n\n\n\n

If you want more insight into this question, I recommend\nreading our guide, The Secret to Picking the Right Time to Invest<\/em>.\nYou\u2019ll learn some of our key reasons, supported by data, why timing the market\ndoesn\u2019t work, and why the key is simply to invest (and stay invested).<\/p>\n\n\n\n

If you have $500,000 or more to invest, click on the link\nbelow to get this free guide today!<\/p>\n\n\n\n

Download\nThe Secret to Picking the Right Time to Invest<\/em>1<\/sup><\/strong><\/p>\n\n\n\n

_____________________________________________________________________________<\/p>\n\n\n\n

This interest rate environment has upended traditional principles\nof saving and investing, in my view. Many baby boomers and retirees may fondly\nremember the decades (70\u2019s, 80\u2019s, 90\u2019s) when Certificates of Deposit paid north\nof 5% and cash deposits at banks earned solid rates of interest. In the chart\nbelow, it\u2019s easy to see the years when interest rates were higher and saving\nwas actually incentivized. <\/p>\n\n\n\n

Interest Rates, Discount Rate for the United States<\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Source: Federal\nReserve Bank of St. Louis2<\/sup><\/em><\/strong><\/p>\n\n\n\n

Not the case today. And with interest rates going even lower, it\nposes a valid concern of what your options are in terms of earning interest on\nsavings. <\/p>\n\n\n\n

The bottom line is that retirees and future retirees are likely to\nhave few options for risk-free returns in the next 10 years or more. In my\nview, it makes sense to have one year\u2019s worth of living expenses set aside in\ncash, in a liquid account that likely pays very little interest — that\u2019s just\na fact of life. But your remaining assets are likely going to need to continue\nworking for you, and growing over time, so that your long-term retirement needs\nare met. The answer, in my view, is to make a long-term commitment to investing\nin stocks — up to the degree that your risk tolerance and goals allow. <\/p>\n\n\n\n

I would argue that equities are very risky for short-term\ninvestors or investors who have short-term cash flow needs. But if your goals\nare long-term and the money is meant to last for your lifetime, then the time\nhorizon for growing the assets is not just one year or five years, it\u2019s\nprobably more like 20 or 30 years. Over these longer stretches of time, I would\nargue, equities become a lot less risky. <\/p>\n\n\n\n

With low\ninterest rates and market volatility, you may be wondering if now is a good\ntime to invest…or would it be better to wait a few months and see if things\nsettle down. <\/p>\n\n\n\n

If you\nwant more insight on this question, I recommend reading our guide, The\nSecret to Picking the Right Time to Invest<\/em>.3<\/sup> You\u2019ll learn some\nof our key reasons, supported by data, why timing the market doesn\u2019t work, and\nwhy the key is simply to invest (and stay invested).<\/p>\n\n\n\n

If you\nhave $500,000 or more to invest, click on the link below to get this free guide\ntoday!<\/p>\n","protected":false},"excerpt":{"rendered":"

Mitch looks at the options if savings accounts offer no interest<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8241","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8241","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8241"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8241\/revisions"}],"predecessor-version":[{"id":10707,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8241\/revisions\/10707"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8241"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8241"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8241"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}