Rising Interest Rate Opportunities!

Interest rates have been around since the dawn of civilization! They can be traced all the way back to 3000BC. It didn’t take long for people to realize the importance of interest rates as a critical part of the borrowing and lending equation.

Interest rates have changed significantly since back in the early days when a 20% rate was a common occurrence. These days, interest rates that high would cause mass panic.

The Federal Reserve sets interest rates in this country and the benchmark rate is called “The Federal Funds Rate!” This is the rate that banks charge other banks to lend Federal Reserve funds to each other for overnight borrowing. This rate must be manipulated for time to time, moving lower to stimulate growth or moving higher to curb inflation.

The rate is critical because of the ripple effects of the Federal Funds Rate. The FFR affects the Annual Percentage Rate (APR) on credit cards, home equity lines of credit, auto loans, mortgages, Certificates of Deposit (CD’s) and savings account rates just to name a few.

If you look at the history of the Federal Funds Rate, it was at ZERO from 2008-2015, and again at ZERO from March 2020 to early 2022. Lowering this rate helped stimulate economic growth and triggered the real estate and refinance boom the last 2-3 years. Real estate has cooled off now that mortgage rates have doubled this past year from 3% to 6%.

You might be asking yourself, what does this all mean? The Federal

Open Market Committee (FOMC) meets every 6 weeks to evaluate rates. They have never been this transparent as they have stated there would be several substantial interest rate increases last year and smaller incremental increases this year.

This means, for conservative investors, there will soon be a major “Safe Investment Opportunity” to lock into these higher “Fixed Annuity Interest Rates” for multiple years with zero risk!

Fixed Annuities are issued by insurance companies as an alternative to bank Certificate of Deposits (CD’s). Fixed annuity rates were under 2.0% early last year, and in New York State there are currently a few insurance carriers offering 5-year and 7-year Guaranteed Fixed Interest Annuity Rates returning just over 5%.

Annuity rates should break the 6% barrier by the 3rd quarter of this year, which would be a great time to lock them in for multiple years going forward! Note that New York State is the most highly regulated state in the country; hence, New York State’s interest rates usually lag the other 49 states by roughly 50 basis points (one half of 1 percent). When planning with clients who own multiple homes in and out of New York State, the multi-year guaranteed interest rates will always be higher outside New York.

See below to read the Lucky 13 Advantages of Fixed Rate Annuities:

1.Guaranteed Interest Rates: The exact amount of cash value is known at the end of the guaranteed term period.

2.Guaranteed Principal: The principal is protected regardless of market conditions or company performance.

3.Interest Rates: Higher than CD’s, bonds or T-Bills.

4.Tax Deferred: Unlike CD’s, income taxes are not paid until funds are withdrawn, which allows for faster accumulation and greater income potential.

5.No Fees: There are no annual management fees while funds accumulate and no fees on death benefits to heirs.

6.Protected From Creditors: If one gets sued creditors cannot go after or attach fixed annuity funds.

7.Bypasses Probate: Fixed annuity death proceeds bypass probate hence they are private, saving on estate fees and going directly to named beneficiaries outside the will.

8.Lifetime Income Options

Available: At any time,a fixed annuity may be converted into an income stream one cannot outlive.

9.Annual Withdrawal Options

Available: Most fixed annuities allow for 10% annual withdrawals free of surrender charges.

10.Annuitization: This unique annuity feature allows the policyholder take a guaranteed income for life and/or a period certain and have a portion of the income excluded (called an exclusion ratio) from taxation.

11.State Protection: Should the annuity insurance company become insolvent, there are state protections (depends on what state you live in) with aggregate limits between $100,000-$250,000 in most states.

12.Piece Of Mind: Annuities are secure and offer piece of mind to account holders knowing they are safe from harm’s way.

13.Lowers the FAFSA Score: For those parents with college bound students looking to qualify for merit-based (FREE) endowment money, repositioning parental asset into FAFSA-friendly Fixed Rate Annuities can lower the FAFSA score by almost $6000 for every $100,000 moved out of non-FAFSA friendly financial vehicles.

In conclusion, this is a tremendous financial planning opportunity that comes around perhaps once every 25 years. There will soon be multi-year guaranteed fixed annuity interest rates this year that should break 6% at their high point before the Federal Reserve is satisfied that inflation is under control and starts to bring rates lower.

Keep in mind when rolling over monies from other investments, most insurance companies will offer a 60-day rate guarantee whereby the policyowner gets the higher of the current rate (at the time of application) or the rate offered at the time the funds actually transfer into the annuity!

By Robert C. Intelisano CSA, CLU, LUTCF