Lower interest rates are the starting signal for a new race in the world of finance and business. On the one hand, this decline may encourage more borrowing and investment, which may lead to a recovery in the economy and more jobs. On the other hand, it may lead to higher prices of assets such as Real Estate and stocks, which may make it difficult for some to participate in this growth.
Speaking to Sky News Arabia Economy, Emirati financial and economic expert Hussein Al Qamzi said to consumers and investors, “When interest rates drop, as happened recently, it is important to understand the impact of this change on aspects of your financial life. If you have borrowed to buy a property or a car, it may be wise to refinance these loans to benefit from the lower interest, which reduces monthly payments and contributes to saving by reducing interest in the long term.”
Also, it may be a good time to get new financing for projects or real estate investments, as borrowing costs have become lower, and as for your savings, returns may become less attractive, so you can consider investing your money in higher-yielding assets such as stocks or mutual funds, while maintaining sufficient liquidity to meet any emergencies, according to financial analyst Al Qamzi.
He pointed out that “the rise in the prices of assets such as real estate and stocks occurs during periods of low interest rates due to increased demand for them, which may represent an opportunity to achieve capital gains. Therefore, it is necessary to carefully balance your financial decisions to make the most of these economic conditions.”
Personal Finance Dynamics
Financial and economic expert Ali Hamoudi told Sky News Arabia Economy: “The decision by the US Federal Reserve to cut interest rates has sent waves through global financial markets, including those in the Middle East. Such a move could have a significant impact on personal finance dynamics in the region. While low interest rates can stimulate economic growth by making borrowing cheaper, they require individuals to recalibrate their financial strategies.”
He explained that low interest rates can have several effects on personal finance, as follows:
- Cheaper borrowing costs, For individuals and businesses, the cost of loans and mortgages becomes more affordable, and this can lead to increased borrowing, whether to buy homes, cars or finance business projects.
- ALower returns on savings Savings accounts, fixed deposits and some investment vehicles may offer lower returns, prompting savers to rethink their investment strategies.
- Investment attractiveness: As traditional savings instruments yield lower returns, investors may seek higher returns through stocks, real estate, and other asset classes.
- Increased consumer spending: Many consumers may feel more confident in spending because of lower borrowing costs, which could stimulate economic activity.
5 Strategies for Financial Decision Making
Financial expert Hamoudi pointed out five strategies for making financial decisions, as follows:
- Reevaluate your debt: In a low interest rate environment, it’s a good time to reevaluate your current debt and refinance existing loans, especially mortgages, to take advantage of lower rates. This can lower your monthly payments and reduce the total interest paid over time. Focus on high-interest debt, meaning paying off high-interest debt such as credit cards, which may not benefit from lower rates in the same way as other types of loans.
- Rebalancing Your Investment Portfolio: With Low Interest rates On savings accounts, consider diversifying your investments, looking into stocks or ETFs, especially in sectors that are likely to benefit from lower borrowing costs, such as real estate and consumer staples. Many people view real estate as a solid investment. Low mortgage rates may provide an incentive to invest in real estate, whether for rental income or capital appreciation.
- Maximize returns on savings: While savings accounts may offer lower interest, it’s essential to maintain a solid savings strategy, by maintaining a solid emergency fund to cover 6-12 months of expenses. Having liquidity is critical, especially in times of economic uncertainty. Explore alternative savings options, i.e. consider high-yield savings accounts, or other investment products that may offer better returns than traditional savings accounts.
- Planning for large purchases: Low interest rates can be a good time to make large investments, such as buying a home. Now may be an excellent time to secure a mortgage at a lower rate, which reduces your long-term financial burden. Also, finance vehicles, by looking into auto loans that may come with lower interest rates, making it cheaper to buy a new or used vehicle.
- Re-evaluate your financial goals: As interest rates change, it is essential to revisit your financial planning. Continue to contribute to retirement accounts, and for those with children, consider education savings plans or investment accounts that can provide growth potential over time.
“Navigating a period of low interest rates presents both challenges and opportunities for individuals,” Hamoudi concluded. “By understanding the implications of these changes and adjusting your financial strategies accordingly, you can make informed decisions that position you for long-term success. Whether it’s reassessing debt, diversifying investments, or preparing for major purchases, the key is to stay proactive and adaptable in an ever-evolving economic environment. Taking these steps will not only secure your financial footing, but also provide a path to achieving your long-term financial goals.”
