Taking the time to consider how you can benefit financially in a low interest rate environment is a great way to strategise for your financial future.
Here are seven ways low interest rates can help you make money:
- Rule out credit card debt – It’s simple but powerful. If you have got money available to drawdown, pay off your credit cards as the interest payments are higher on these than currently on your home loan.
- Be interest rate savvy with your term deposits – Just because the rate of return on term deposits may be lower in a low interest rate environment, doesn’t mean they should be ruled out altogether from your wealth management strategy. If you think interest rates might go up in say, three months why not take out a three month term deposit so on maturity or at the half way point, you have the option to roll over the term deposit and make the most of the higher rate.
- Use freed up cash flow to build wealth – Why not use the cash left over from mortgage repayments to build an investment portfolio to increase your wealth management footprint. For as little as $100 a month, you can contribute to an investment portfolio that invests in a range of asset classes that over time will grow your wealth.
- Use the money set aside for mortgage repayments to pay off some principal on your loans - Getting ahead on your mortgage is a great financial strategy, and easy to do if you are already in the habit of paying more than you need to cover interest repayments. So keep your repayments at their existing higher level while interest rates are steady or dropping, and you can knock years off your mortgage.
- Consider fixing your loan – If you choose to fix your home loan, you are likely to pay a higher rate than your current variable level, but in doing so you can extend the lifespan of the existing low interest rate environment.
- Improve diversification and protect yourself when interest rates move – By investing outside of cash alone into other asset classes, you will improve the exposure you have to interest rate movements and improve the diversification in your investment portfolio.
- Consider fixed interest managed funds – These funds provide exposure to the full range of fixed interest environments, adding better diversification benefits to your investment portfolio, exposure to potential upside while helping manage any downside.
Note to editors:
This information was prepared by Bryan Ashenden a BT Financial Group financial specialist. This is part of a series of ‘Seven tips’ Bryan is producing for consumers. For further information or to interview Bryan, please contact Fiona Harris (details below).
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