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This past week the credit rating agency, Standard & Poor's, lowered their outlook on the United States' long term credit rating from stable to negative. The reason why S&P decided to lower the county's credit outlook is because politicians in the District of Columbia can't decide on a budget. If policymakers' can't decide on the budget by cutting spending and raising taxes the interest rate the country pays on the debt it owes will go higher. If our country pays more interest on it's debt you can be sure we are going to pay more. Higher mortgage rates, car loan rates, credit card rates everything. On the other side we will also enjoy higher deposit rates, like CD rates, savings rates and money market account rates. Yes, the country has a credit rating just like we do; I bet you didn't realize that. Just like when our credit rating is lowered the interest rate we pay for goes higher. Well the country works the same way. When the country's credit rating is lowered, the country pays a higher interest rate. Unfortunately when you owe trillions of dollars the interest paid on debt amounts to billions of dollars annually. Since the financial crisis of 2008 and then the recession of 2009 we have had record low interest rates. This will change for a number of reasons, not only because the country's credit outlook was downgraded to negative but also because a stronger economy will lead to higher inflation. Higher inflation will force Federal Reserve to raise the Federal Funds Rate and the Discount Rate. When these rates go higher banks and financial institutions start raising rates on their financial products, including loans and deposit accounts. How do you plan for a higher interest rate environment? Well for one thing if you're thinking about buying a home and have been waiting to doing so, you should go ahead and buy. Why? Because mortgage rates are going higher. Right now you can find 30 year conforming mortgage rates at 5.00 percent. In a year or two 30 year rates will probably be 6.00 percent or even 7.00 percent. If you don't need a loan and earn some of your income from deposit accounts you're in luck. Depositors have had to deal with record low interest rates for several years now. 1 year CD rates are .50 percent right now, not much of a rate to earn any interest. When the economy get stronger and interest rates start going higher you can expect to earn more money on your deposit accounts. Although current 1 year CD rates at banks are around .50 percent and savings rates/money market account rates aren't much better you should see rates start heading higher later in 2011. By the end of the year interest rates will go higher up but don't expect any big jumps in rates. By 2012 to 2013 1 year bank CD rates will be over 1.00 percent and probably closer to 2.00 percent. Savings rates and money market rates will be just has high. Beyond 2013 interest rates on intermediate deposit accounts should be around 2.00 percent to 3.00 percent.
Find the best CD rates at ratesorama. Search bank CD rates by state at cdrates.ratesorama.com.
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