High inflation is a common problem these days. It also is a culprit behind the rising interest rates. Other factors play their part to cause a peak in inflation – true, but an average consumer finds it difficult to have purchasing power for everyday goods and services as a result. If you recall, during the pandemic, prices of goods were made more affordable. Especially when it came to real estate, prices went down. But soon afterward the rate hike was seen more than 5%.
Increases in interest rates have made borrowing money (loans) for cars and homes more expensive. But there’s always a financial silver lining, even in an inflated economy. In this blog, we will discuss the ways you can benefit from high-interest rates.
Saving money, are you? The amount in the bank account may feel like peanuts over the course of the last few months. You’ve probably noticed that even with your incremented income, you aren’t able to save money. Even if you do succeed in saving some amount, the money value depreciates due to several factors.
The good news is that banks want to make profits. So when interest rates are low, saving yields are lower. The higher the interest rate, the high customer’s savings are. Period. So if you own a savings account, the deposited amount will climb.
You can either keep the money safe or buy a real estate property in upcoming neighborhoods such as Nova City in Islamabad offering payments in installments. So instead of paying a lumpsum amount you can divide the payment into monthly installments. Plus you earn higher ROI over the years. So you see? It’s a profit for you!
Having a savings account is all well and good. Especially if you are looking to retire soon. When on the brink of retirement, it is highly recommended to not put your money in stocks. You are unaware of the volatile market and may end up losing instead of earning profits.
However, when savings yields are low, as a retiree your potential outside of the stock market is also low. So if you are one of those retirees who have a high-interest savings account, they can better maintain the retirement budget and stretch the amount a bit longer.
Low-interest rates mean that banks and other platforms impose restrictions on the lending criteria. The reason is a low incentive for them. But when interest rates are high, banks will profit more, therefore their policies become more lax.
If you are someone with less than an ideal credit score, you may easily qualify to get a loan that you’ve been trying hard to get for your home in a new neighborhood. Or maybe even get a car loan for a new vehicle you’ve been planning to buy.
The most benefit can be enjoyed by overseas citizens. An increase in interest rates makes the dollar’s exchange rate stronger too. So Pakistanis living in the US often tend to enjoy a higher purchasing power as overseason citizens. For every penny they spend, the difference in the value makes it easy for them to balance out their expenses and savings.
They can plan more vacations, own a second home more easily, and even save hefty amounts for retirement plans so that they can retire quickly.
Ever heard of Treasury Inflation-protected Securities (TIPS)? When interest rates are high, you can save a quality investment by considering TIPS. these are bonds issued by the government. The purpose is to keep a balanced pace with inflation, so it actually protects your investment portfolio.
Because TIPS have a fixed rate of return, the portion gets easily adjusted in inflation. So when interest rates are high during inflation, it becomes an attractive offer. Only the principal value of the bond is improvised which reflects CPI. Also, it becomes a means of steady income. Plus TIPS are low-risk investments so investors are keenly interested in them.
It is important to remember that economic phases change. So no investment strategy will always yield high returns. You have to be more careful in your evaluations to earn the right opportunity. Rising interest rates are challenging but also not without their opportunities as discussed above. Survey the market before taking a decision.