News & Views 
Valentine's Day Edition 

February 13 , 2015


I hope all is well.  In this edition of News & Views, I will discuss the financial impact of low interest rates.  As always, please contact me with any questions or suggestions you may have.

What's Up (or Down) with Interest Rates?
How Low Can We Go?

The Big Picture:  The chart below shows the historical rate of the 10 Year U.S. Treasury Bond.  Interest rates have steadily dropped from north of 15% in 1981 to today's sub-2%.  

The decline in rates impacts our financial decisions and our lives in many ways.

Consumers: Lower rates make it more appetizing to borrow money.  For example, seven years ago when the housing bubble was at it's peak, the average 30 year mortgage was 6.2%.  With a median priced home in California at $484,000, your monthly payment was $2,964.  Last month, the average 30 year mortgage was 3.9% meaning that same $484,000 house could be had for a monthly payment of $2,283.

Savers: Lower rates make it less appetizing to save money.  Back in the mid-2000s, the average 1-Year Certificate of Deposit paid over 5%, meaning that $100,000 in that CD paid over $5,000 in annual interest.  Today the national average is 0.20%, meaning that $100,000 in that CD pays a little over $200 in annual interest.

How Low Can We Go?: While it may seem obvious that rates can't go much lower than they currently are, that may not actually be the case.  The yield on Switzerland's 10 Year Government Bond recently went negative, so anything is possible (including negative rates in the U.S.)

At some point in the future, the trend of lower rates will reverse and the behavior of individuals and institutions will likely change as well.  In the meantime, lock in low fixed rates on your debts to take advantage of these historically low interest rates. 

Tax Forms
It's that time of year again.  Your 2014 Form 1099s are on their way for your non-retirement accounts or any retirement account transfers that occurred last year.  Feel free to contact me or have your tax professional contact me with any questions regarding these forms.

Paul Hewitt
(949) 727-4734 x1