There Is A Battle

1. There is a battle, new fidelity funding reviews a tug-of-war if you will, between savers and customers in this nation. Savers Lament On the saver's side, conditions are dreadful. Rates of interest on certificates of deposit (CD) have actually dropped considerably to the point where the typical rate for a 1-year CD is 0.55% and merely 1.63% for a 5-y CD. Review that for a bit ... your money locked-up for 5 years earning just 1.63%! Other savings lorries are struggling too. For example, a popular fund that contains corporate bonds from Wells Fargo, AT&T, Wal-Mart, and other blue-chip American companies has an average maturity of 12 years and presently yields about 3.75%. That's 3.75% of taxable interest income. Presuming your tax rate is 33%, you're entrusted to an effective, after-tax yield of 2.5% which, my pal, is less than the historic inflation average of 3%. So, while your bond financial investment is much better than money in the bank and safeguards you to some extent versus inflation, you still wind up with 0.5% lower purchasing power every year. So savers can't be too pleased about this. While Borrowers Rejoice Borrowers, on the other hand, are having the time of their lives. Last week, the average 30-year fixed-rate mortgage struck its lowest level of 4.19%. The kicker here is that home mortgage rates must in fact be more than 0.5% lower - in the 3.8% range - based upon their connection with rates of interest on Treasury bonds. Nevertheless, rates are not likely to go much lower so here's an idea: If you remain in the market to refinance, waiting is probably not going to help you much. Moreover, customers of mine are obtaining millions at 2.15% to money their company activities. Seems a Little Unfair Without taking an ethical position, it does appear a bit unreasonable that savers, who in a sense are the "good guys" developing wealth for their future, contributing capital for economic growth and conserving for a rainy day, are being penalized for the actions of irresponsible debtors and greedy loan providers. Debtors got in over their heads, didn't take affordable safety measures, and are now getting loan modifications and lowered rates on the

2. money they owe. Banks experienced massive losses because of bad loaning practices and triggered this drop in rates to ultra-low levels. Nevertheless, this type of conversation doesn't get us anywhere. What has occurred, has happened - fair or unjust. So where do we go from here, and how do we make money from all this? What Borrowers Can Do Have a look at your finances from a debtor's point of view. First: refinance your home loan NOW if you can because rates probably aren't going to fall much lower. 2nd: store, store, purchase a much better rate on your credit card. Borrowing costs are dropping all around so why should you pay the usual high rate on your credit card? Discover banks that are hungry to lend you cash such as smaller institutions and Credit Unions, and avoid mega-banks that generally have all the money they require. Third: get a service loan if you require the money. Banks are relaxing and making loans at relatively low rates that are really compelling in spite of the risk of slower organisation in this weak economy. Nevertheless, utilize sound judgment and profundity as you handle more financial obligation. Take on "great" financial obligation that funds your home purchase or properties that appreciate in worth. Keep away from taking on "bad" debt for diminishing assets you can ill pay for such as a new car or boat. If you must handle "bad" debt, ensure it is short term and pay it off very quickly. What Savers Can Do Now the tough part: finding deals as a saver. First: try to find a longer-term CD that will adjust greater if rates increase. There is little even worse than locking your money in a 5-year CD at 1.50% only to see rates rise to 5% two years from now. 2nd: consider purchasing corporate bonds with maturities of 5 years or less. These bonds still yield more than CDs, however make certain you know what you are buying - if the corporation declares bankruptcy, you could lose an excellent chunk of your "safe" investment. Third: consider purchasing high dividend-paying blue-chip stocks. Warren Buffet just recently stated that stocks are cheaper than bonds today, and he's right. There are many solid companies out there whose dividend yields are above 3%. For example, Altria currently has a dividend yield of 6% and a solid history of consistent dividend payments. So ... it's up to you to be a winner or loser in the cost savings and borrowing video game. All you have to do is know the truths, choose to act, get on the phone or in your cars and truck, and start getting your affairs in order.