Bond Interest Rates
Bond interest rates are the interest paid on bonds issued by some entity, often a governmental one. This entity can be a municipality, the federal government and corporations. Some are mortgage and asset backed securities and some may be for the shoring up of foreign governments. They are in a real sense an IOU that the issuer will repay at some future date with a loan profit. They are looked on as fixed income securities because the worth of them is already assessed ahead of time. That means that someone building a portfolio of investments should include bonds as part of his long range retirement strategy for retirement.
Bond interest rates are not static by any means because they are always moving, often hourly or daily. There are a number of factors that go into the rising or declining of points bonds will produce including the supply of credit, Federal Reserve policy, fiscal policy, exchange rates, economic conditions, and more than any other single factor, the expectations of inflation. The major rule in evaluations of loan cost rates for these specialized IOUs is this: as loan costs rise, bond values fall. Now the caveat to this is that the longer the bond's maturity life is, say five years versus one year, the more it will be hurt by rising interest costs. In biblical days, a yoke was a steering device for oxen. It is a perfect metaphor of the care and direction God gives to Christians. Jesus said, "Take my yoke upon you and learn of me; for I am meek and lowly in heart: and ye shall find rest for your souls. For my yoke is easy and my burden is light" (Matthew 11: 29, 30)
When cities need to build roads or stadiums or bridges or other infrastructure projects, they will often issue municipal bonds to fund these ventures. When they are issued they will have a coupon value, which is the term used for bond interest rates. A one thousand dollar municipal bond with a seven percent coupon will pay seventy dollars a year in interest for ten years. In most cases, bond interest rates payments are made every six months. Corporate bond loan profit earned is usually taxable as income, however, municipal and state bonds' earned loan profit is usually tax-exempt if the investor lives in the same state as the issuer. The coupon of an issued security does not change but since the market's loan profit rates change every day, the bond interest rates value of the security you are holding may cause the entire security's value to go up or down in value. For example, the one thousand dollar "muni" with a seven percent coupon rate goes down in value when the loan profit rate charged to banks begins to rise.
If you are holding that muni, and think that the rates will continue to climb, the smart thing might be to sell it pronto. And the holder will probably take a loss, since the bond is now being viewed as a possible liability, especially if its bond interest rates value is passed by the market rate, and of course the opposite is also true. That one thousand dollar muni with the seven percent coupon looks mighty fine as interest rates begin to dip and the holder might be able to sell that security for more than its scheduled bond interest rates value. There is another interesting turn in this whole discussion and that is many of the securities issued by various entities are callable. Just like calling that teenager to get home because he's three minutes over curfew, an issuer of a security might do the same thing. "Get that high interest rate muni in here! The loan cost rates are plummeting and I want to cash out that seven per center you're holding so I can buy more at three and a half percent!"
Just like stocks, bonds issued have a risk, because the bond interest value can move up or down. This might seem a little confusing because it was said earlier that bonds have a fixed face value, and they do. But consider that infamous one thousand dollar bond we've been throwing around has a coupon rate this time of 10%. Something happens in the financial sector and loan cost rates start to go down. But you are holding a securities note that is paying higher interest and the lower the interest goes, the more valuable that note is because if it higher rate. Somebody will definitely want to buy that thing for possibly twelve or thirteen hundred dollars depending on all the numbers. However, suppose the loan cost rates start creeping up; for every upward tier the loan cost goes, down come the value someone will pay for that bond, maybe down to seven or eight hundred dollars.
A bond interest rates value is generally higher the longer the term of maturity and this is because there is a longer length of time for something to go wrong. Three main time frames compose most securities of this type: short term (2 years or less), intermediate (2-10 years), and long term (ten years and longer). Financial experts advise to have differing lengths of maturity dates on one's portfolio and also various issuers such as municipals, corporate bonds and government bonds issued by the federal government. Those issued by the US government are considered the safest of all securities investments. US savings bonds are the most well known of all the securities and many children and grandchildren have received these from parents and grandparents for gifts.
Savings Interest RatesBefore joining a new bank, evaluating savings interest rates is a key factor for consumers to take into consideration. Most banks and financial institutions offer some type of basic savings account for customers. Minimum opening balances are usually quite low - usually $1 or $5, but some require higher balance to avoid monthly fees. Most people keep at least some cash in such funds where they can easily access it at any time needed. Plus, accounts are insured through the Federal Deposit Insurance Corporation up to $250,000, there is virtually no risk involved. Savings interest rates are notoriously low, compared to other high-end investments, but these safe and stable accounts are a great way to begin putting money away for the future and earn a little bit of extra money in the process.
Individual banks and financial institutions establish the savings interest rates offered. These percentages are most affected by the Federal Reserve. By raising and lowering the short-term interest rate that banks charge each other to borrow money, the Federal Reserve attempts to keep the economy stable. Lowering rates during a slow economy makes borrowing money more appealing, products and services more affordable for consumers, and keeps the economy moving forward. Raising rates during an inflated buying and selling balances the economy as well. These changes regulate the country financially, stopping it from slipping into inflation and recession, keeping companies and businesses active and protecting employers and their employees. Climatic and natural disasters, racial crises, and terrorism can also have a major impact on interest short-term interest rates. Long-term rates like mortgages are generally not as affected by economic conditions but will eventually shift with the changing tide.
Since savings interest rates fluctuate from bank to bank, consumers should research and compare plans before deciding to open an account. In addition to the percentage offered, banks will vary on the way that percentage is paid. Typically, gains are added to the account monthly, but some financial institutions will pay interest bi-monthly, semi-annually, and even annually. The longer money is kept in the account and the more frequent earnings are added, the more the financial yield increases. As money is credited to the account, it begins to earn interest along with the invested principal. This is called compounding or reinvesting interest. The same principle works in the fields. Seed is spread, yet the harvest it brings is far beyond what the farmer originally invested. "Now he that ministereth seed to the sower both minister bread for your food, and multiply your seed sown, and increase the fruits of your righteousness." (2 Corinthians 9:10)
Savings accounts come in all shapes and sizes, but there are two basic types. Passport accounts require individuals to enter transactions - deposits, withdrawals, and interest - into a booklet. Banks supply periodic statements for statement savings accounts that detail monthly or quarterly transactions. Similar to basic bank accounts, savings interest rates for money market funds are not fixed. Regulated by the U.S. Securities and Exchange Commission (SEC), money market funds are invested in short-term bonds and other government investments that are less risky that many other forms of investments. Plus, these funds tend to bring a higher rate of return than typical bank accounts. However, because they are available only through mutual fund companies, money market funds are not FDIC insured like bank accounts.
Bank savings accounts and money market funds can be beneficial for conservative individuals who want to keep money safe for short-term use. People who want to earn more than basic savings interest rates usually have to take higher risks with investments, but there are other options. Online banks and traditional banks with online accounts generally offer higher percentage rates. Members are given a username and password to access accounts and many online services. Banks save money by not having to mail regular statements or pay for bank tellers, so they can offer higher yields. Some banks and mutual fund companies also offer various high return accounts to preferred customers. These offers can include fixed deposit savings or monthly income accounts that are usually based on a maturity period of several years. Consumers who don't need access to their money for an extended period of time can invest in these accounts to earn greater amounts, but that money is tied up until that maturity period has come to a close.
But savings interest rates aren't the only thing that consumers should consider. Most banks limit the electronic, telephone and pre-authorized transfers as well as draft and debit card purchases that can be made each month. Others require a higher balance or direct deposits with more frequent withdrawals. In general, customers can withdraw money from an ATM as many times as needed throughout the month, but teller interactions are limited. Before opening an account, individuals should know and understand the bank's policies and limitations. Every financial institution is different as well as every policy. Online banking might not be a comfortable fit for everyone. Find a financial institution that offers a plan that best fits an individual's lifestyle and needs. That takes research and time. Savings interest rates may not provide a grand return on investment but it can provide a safe way to keep some money on hand in case of unemployment. Most investors split savings into a variety of areas including stocks, bonds, mutual funds, money market accounts, and other high and low yield funds of varying degrees of risk. This strategy balances out gains and losses in the fluctuating economy and have the opportunity to provide a solid retirement holdings for years to come.