ALL KINDS OF RATES
Wednesday, July 21st, 2010Interest rates, prime rates, overnight rates, bank rates, mortgage rates, deposit rates, basis points, etc. I wonder how many people really know the difference and impact of these various rates and terminology. They seem to be tossed around in the media and in financial newsletters regularly and they are all important. But, when you listen to the way people discuss rates and the impact they have on their life, there certainly seems to be a gap between rate language and understanding.
But does it matter for day-to-day financial decision making?
The answer is yes, but…
Many people have decided they would rather not deal with money issues because they find it complicated or intimidating. Without a foundation of knowledge, it certainly is both of those. There are so many factors that affect every area of our money that the important thing is to recognize that you can take charge, learn what you know (and don’t know) and what’s important to you so you can ask better questions to make better decisions.
With respect to the types of rates that are tossed around in daily discussions of interest rates, the important thing is to recognize the term, listen to the context in which it is being used and ask some questions or do some simple web research to find out what the term means. And, most importantly, what does it mean (if anything) to you and your situation and your goals.
I live in Canada, and the overnight rate just increased. This in turn caused the bank prime rate to increase as well as mortgage rates and deposit rates. Now, if you don’t understand why this happened or what the impact is in the big picture, or if you don’t follow it and keep track of the ups and downs on a regular basis, then you could be on the side of the equation that says, “They’re just out to get me with higher interest rates. The banks make so much money already they don’t need to keep charging the everyday person more interest.” Or, you could be on the flip side saying, “Great, it’s about time they recognized that those of us on fixed income can’t live with such low interest rates on our savings.”
Either one of these isn’t empowering, abundant, confident or knowledge based assumptions / opinions. The fact is that federal governments are constantly doing a balancing act to maintain stability in the economy so we have a positive economic environment for business and investment at home and abroad. When we have a positive and stable business and investment environment, it benefits everyone: employed, retired, young, and old. And, the more you know about the terms, the concepts, the application, and the implications, the better off you will be. That is because you become more confident and will have gained the knowledge to understand the impact to you for the decisions you make on a day-to-day basis.
If you would like to know how, where or who to ask to learn more about the impact of the various types of rates we hear about daily, then consider asking your questions and following the dialogue as a MoneyMinding Minute Manager Member. If you are already a member you can log in here
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