With President Trump now in office, more than ever, experts believe the Federal Reserve Bank has waited too long in increasing interest rates while others believe that the Fed should still hold back to protect a slow recovery that could take a dive from new highs since many other countries are still struggling with their economies. No matter what you believe regarding interest rate timing – the one thing everyone expects is… [continued below video]
Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
[continued] …that when the Fed. does make its change to seriously increase rates we should brace ourselves for a rocky ride.
When rate increases eventually occur, it will impact many of the financial products utilized by retirees such as stock, bonds, certificates of deposits, money market accounts, and annuities. History gives us some guidance on how each of these areas react when rates increase. Perhaps the most often used correlation is when interest rates go up, bonds prices go down. In a more positive aspect for savers, rates should increase for bank savings account such as CD’s, money market accounts, and annuities.
Stock’s typically see more of an downward affect due to changes in the tightening and increased cost of money as the cost of borrowing increases. While changes in rates don’t directly impact share prices, higher rates will decrease the amount of dollars available to borrow and lend – typically causing increased stock volatility.
Annuities react more like savings accounts – allowing the insurance carriers to pay better rates of interest and potentially enhance benefits. The reason why annuities are considered by many as a better bond alternative at this time is due to the fact that annuities do not move inverse to interest rates – yet still have the ability to provide safe growth potential with income **guarantees for a long term retirement solution. One affect from a volatile stock market is that too many folks head for the safety of annuities, and at the same time, driving rates and **guarantees down as a result of supply and demand since annuity companies have to maintain safe reserves limiting how much money they can protect with annuities.
Here is a exerpt from related article from Forbes for your review.
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