As 2016 draws to a close, it already is being remembered as a year of historically low interest rates.
The rates borrowers pay on loans, just like the rates that savers earn on their deposits, have been at some of the lowest levels in recent history, continuing a trend that has endured for the last several years. Everyone keeps waiting for rates to increase, but it simply hasn't happened yet.
What is in store for interest rates in 2017? Expect to hear more discussion about rates rising. But even if they do — and remember we've been hearing this talk for some time — they likely will remain at or near historic lows. What does that mean to those who need to borrow as well as those who need to save?
Let's start with borrowers. The news here remains quite encouraging. Interest rates — the "price" we pay for borrowing money — are almost sure to remain bargains. That means it's a great time to lock in a rate to buy a home or a car. It also means you should shop around to find the best rate instead of simply taking whatever rate is offered to you at purchase, especially when you're buying a car or a larger item such as a recreational vehicle, a snowmobile or an ATV.
In addition, borrowers should consider refinancing, even if they have done so already in this period of historically low rates. In many cases, rates have come down further from where they were just a few years ago. It may make sense to consider refinancing your home loan, car loan or other type of loan, even when you already have what borrowers traditionally would consider a great rate.
My advice for anyone seeking a loan to purchase or refinance is to shop around and then work with someone you trust. Your local community banker can be that person, offering a wide array of lending or refinancing options as well as straight talk about what loan options make sense — or don't — for you at this point.
If you discover that it doesn't make sense to refinance right now, don't give up. First, a lender who will tell you that it's not worth your time, effort and funds to refinance at this moment is usually a lender you can trust. With the interest rate situation unclear and with most loans being long-term propositions, it makes sense to stay in touch with a lender you trust. Chances are you will have another opportunity to run the numbers and perhaps find a scenario in which it makes sense to work together. When it comes to lending, relationships really do matter.
Low rates also make it especially attractive to consider business lending options such as loans for a business purchase, an expansion, buying new equipment or refinancing an existing business loan. If you are a business owner and are considering a line of credit for your business needs, this would be a good time to talk with your lender as well.
Now for the savers. As all of us know, low rates mean we're not earning lots of interest income on our savings accounts, certificates of deposit and other traditional savings vehicles. But with inflation not advancing at high rates either, it also means we're not falling behind. We're just not in an era of high rates, as we were several decades ago.
Many of us would easily take the stability of low and steady rates over double-digit inflation, even if it means we're not earning lots of interest income. And while savings accounts are not generating big interest windfalls, they generally are safe. Accounts like these are among the safest you can find, benefitting from the backing of the Federal Deposit Insurance Corp. or other government programs. So while they're not growing quickly, they're also not going to lose their value, as can be the case with other investments.
My advice to savers is the same as to borrowers. The best way to get the best interest rate is to shop around and develop a relationship with a banker whom you trust. Most have an array of saving tools to meet your needs. When they understand your needs clearly, they can offer the best option as well as keep their eyes open for opportunities that will achieve your long-term savings goals.
Where will interest rates go in 2017? If this past year is any indication, our predictions are likely to be just that. But by staying in touch with a banker you trust, you can be aware of trends as they develop and understand how to best benefit from them.