Since the financial crisis of 2008, base interest rates across the globe are moving steadily downwards as central banks try to stimulate sluggish economies. Whereas not so long ago interest rates hovered around the 5% level to discourage inflation, little by little, worldwide rates are heading toward zero, which would seem to be the logical endpoint for this particular monetary tactic.
However, with the economy still in the doldrums across many parts of the world, things may go even further than this, with central banks potentially setting their base rates below zero. This sounds irrational, but what does it mean?
The Cost of Saving
In effect, central banks will then charge commercial banks a fee on the capital they hold in reserve. The intention is to discourage banks from hoarding their spare cash, and instead to inject it into the economy in the form of low-interest loans. This is good news for borrowers, who may get credit at a lower cost than ever before, but it is not such a good deal for savers.
It appears that some retail banks are preparing to charge business customers interest on in-credit account balances, and while it seems unlikely that this will apply to private individuals any time soon, the pressure on the banks’ balance sheets feeds through into negligible interest earnings on almost all personal savings accounts.
So if your money isn’t earning anything in a savings account, what should you do with it to protect your wealth? While interest rates remain at or above zero, a traditional bank account is still a safe place to store your surplus funds. Your investment won’t earn any return of note, but it will be protected. However, when inflation rears its head again, the real value of your wealth will be eroded unless rates rise to match it.
Making Your Money Work
However, if you want your money to work for you, or want to be sure you won’t be hit by negative rates, then it’s probably time to look at alternatives. Stocks and shares have the potential for good returns in the long term, but times are uncertain, and there is more risk than usual involved here. The same applies to mutual funds and other investments which are linked to stock market performance.
This leaves one area of interest to investors with a long-term viewpoint, and that’s physical assets. In this area, property is the traditional investment of choice, showing high returns with little risk. However, some parts of the housing market are still to recover fully from the turmoil of the last decade, and many experts warn of further falls in property prices should the economy take yet another lurch toward trouble.
The Advantages of Precious Metals
A far better bet is to invest in precious metals such as gold, silver, or platinum. Bullion has several advantages in the current climate. Firstly, it has a real physical value that will be largely unaffected by economic volatility. Indeed, gold, in particular, is seen as a safe haven in times of trouble and tends to hold its value or even appreciate when the financial markets flounder.
Secondly, even if there’s another serious financial crash, bullion’s intrinsic value is unlikely to be lost, especially in the medium to long term. Stocks held in companies that go bankrupt lose their value entirely, but there is almost always a buyer for precious metals.
Finally, history shows that bullion tends to enjoy steady if unspectacular gains over time. It will almost certainly provide a better return than today’s typical savings accounts while offering far less risk than paper investments.
While in these turbulent times no one is sure what the economic future holds, if you want to protect and even increase your wealth, it seems that avoiding financial markets is the safest approach. Physical assets, and bullion in particular may well be your perfect choice.