I’ll have to admit this is a hard topic for me to discuss. Because I am loyal to a fault! Given the current difficult economic times (you know, a tumultuous stock market, high inflation, high interest rates, etc.?) and stories I am hearing from clients and friends, it is necessary to discuss how loyal you should be in making financial decisions.
Let’s start by keeping it simple. I mentioned in a previous blog to purchase groceries when they are on sale to help mitigate the increasing costs from inflation. Well it seems that sales prices are not enough these days. The sales prices are higher than the prices of the goods and services a year ago. Off to another grocery store that sells the same or similar goods for cheaper prices. You know those places. So much for loyalty.
Let’s take this a step further…. As of the posting of this article, the prime rate is over 6%. Ouch to those with a variable interest rate on a mortgage or home equity line of credit. The rate for 30-year mortgages is currently over 7%. The federal funds rate is currently between 3 and 3.25%. You are probably saying, Darlene is telling us to not get a mortgage or HELOC right now…. On the contrary, I am telling you that your savings account should be paying out more than 0.01% interest. Yep, there are several large banks that are still paying 0.01% on savings (check out bankrate.com). If you shopped the market for better interest rates, you would find that you could get an interest rate of around 2.2% at other, more competitive banks. I have independently verified this interest rate with two large financial institutions.
Let’s do a little simplified math for a minute. If banks are charging customers over 7% for mortgages and paying 0.01% on their customers’ savings accounts, you can see why the financial sector in the stock market is currently performing much better than other sectors of the market. Okay, so I am oversimplifying. But the point is to do your research. And shop for the best interest rates. If your current bank that you have been loyal to over the years really appreciated you as a customer, the bank would have been increasing your interest rate along with the increases in the federal funds rate. You must look out for yourself and what simple strategies could help improve your retirement situation. Banks are fattening their pockets at the expense of your retirement.
To throw another curve ball at you, there are 5-year Multi-Year Guaranteed Annuities paying over 5% interest. Now before you run out to get an annuity, understand how they work. For any questions on annuities, schedule a call or check out my YouTube channel. Here is a video to get you started: MYGA Pros vs. Cons.
I have one more item I want to address. I have a friend who received a quote from a large bank recently for a mortgage. The quote seemed competitive with other mortgage rates I have been hearing from independent mortgage brokers. But get this…. She was then told that the bank would reduce the interest rate on her mortgage if she transferred over her previous employer’s 401(k) to the bank. How is it justification to reduce the interest rate on her mortgage only if she transferred her 401(k) to the bank? Why not give her the lower rate on her mortgage from the onset? How is this building customer loyalty when the bank is going to charge her a higher interest rate if she does not transfer her 401(k) to the bank?
Points I have addressed in this post are items I look at when preparing my clients’ financial plans. Including the cost of groceries…. Okay, so I am only kidding about the groceries. I don’t look at grocery receipts.
Yet…!
Let me briefly address small businesses. Many are struggling with today’s economic turmoil. They are going through the same financial hardships as you but on a larger scale as their income is not fixed and their expenses are increasing with the cost of inflation. You are dealing with an increase in expenses due to inflation, but your income remains fixed. If possible, please do support local, small businesses that you love even if they are charging a little more than their larger competitors.
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