What To Know About Guaranteed Interest Rates
Stability in finance is usually the hub of building wealth, and sometimes, you want a sure way to increase your savings without concerning yourself with the fluctuations in the market. Guaranteed interest rates could be a great option for such people. In this guide, we’ll discuss what guaranteed interest rates are, their benefits, and how to consider a product when choosing to feature this.
What Are Guaranteed Interest Rates?
Guaranteed interest rates are financial products that promise to give some kind of guaranteed fixed return over a set period. Some of the most common carriers for such rates are usually fixed deposits, GICs, and annuities. Here, you know exactly what you will gain, making it easier to plan your finances.
Benefits of Guaranteed Interest Products
These financial products protect your principal investment while providing a steady interest income. This can especially come in handy for retirees or anyone near retirement, as it gives them peace of mind knowing their money isn’t going to be at risk. Guaranteed interest rates could also help you diversify your portfolio. As long as the investment is low-risk and stable, you balance that out with the higher-risk options to ensure part of your savings grows steadily with the flow of time.
How to Get the Best Rates
You should compare and shop around when looking for the best-guaranteed interest rates, just as you would when finding other products. As a matter of fact, different banks and credit unions have different rates and this depends upon the market situation prevailing at the time and term of investment. For example, to find the best GIC rates, you have to check the long-term rates with the short-term ones in order to get the best bargain. Some institutions offer promotional rates, so look out for these offers, too.
Long-term vs. Short-term Rate Options
You can either opt for a long-term guaranteed interest product or a short-term product. For example, a five-year GIC pays a higher rate because you’ve pledged your money for that term of time. This is more advantageous if you don’t require urgent access to your funds. The drawback, though, is that short-term products, like a one-year GIC, pay a lower rate because your money is tied up for a shorter time. Consider your liquidity needs and financial goals in this decision.
Risks and Limitations to Be Aware Of
Generally, guaranteed interest rates are considered a safe place to invest. But they have some limitations and risks with them. Over time, inflation erodes your purchasing power. When inflation moves above your guaranteed interest rate, your real return will not be as much as you thought. Also, most guaranteed investments come with penalties if you withdraw the money before it matures, so your money is not as liquid as it would be in other types of investments. Be sure you understand all terms and conditions of the investment product you are choosing, particularly if you think that you might need access to your funds before the end of the term.
Conclusion
Guaranteed interest rates offer a secure and predictable route in saving with minimal risks, especially for risk-averse individuals who abhor the uncertainty associated with stock markets. With benefits like assured returns and predictable income, these financial products can play an all-important role in an overall diversified investment strategy. It is, therefore, important to shop around for the best rates, weigh the pros and cons of long-term versus short-term commitments, and pay attention to inflation. The more you know and the wiser your choices, the better you will be able to make the most from these guaranteed interest products.
