As many of us figured they would, the fed just raised interest rates again. This time by a half point, the largest single increase in two decades.
Many predicted these hikes, and if comments by pundits and economists are to be believed, rate hikes will continue for the foreseeable future.
That said, rising interest rates are not all doom and gloom. In fact, savvy companies can make it work for them. And that’s because, all else being equal, the Fed raising rates works both ways. Yes, you pay more for the money you borrow, but you also generally earn more on your money in the bank.
Note: I do realize the “value of a dollar” factors into things in a big-picture sense, but this would be true regardless of where your money is, so I prefer to focus on raw numbers – the number you pay out, and the one you get paid.
This can work well for you in several ways, and honestly, it mixes quite well with equipment financing.
Locking in fixed-rate equipment financing now (while keeping your own money in the bank) can work out well when rates go up. Not only are you already locked in at a lower rate on your payment, but the money you kept in the bank is now earning more. This could be substantial as the dollar figures (and rates) rise, but at any level, paying a lower rate out while earning a higher rate in has no downside.
This also works very well with Section 179. If you take a full deduction, the money from the tax savings stays in your bank account. As rates rise, just by sitting there, that money works harder in a raw numbers sense. I realize some companies may still like to depreciate annually, but in a “rising rates” climate, many will feel it’s more advantageous to take it all in one lump sum and let those higher rates do their thing.
Rates going up are not smiled upon by businesses, but they are an unavoidable fact of life right now. And with a little planning, you can definitely make this work better for you.
Lock in low, keep your own money in places that get higher rates, take deductions, add the deduction money saved to the “keep” pile, and keep reading The Lease Guy!