The new nature of banking

"A financial expert I went to see had some simple and maybe sage advice. If you have some money right now, go buy something you want. Or spend it on an experience like travel. Why? The value of money is slipping away. Soon, it might not be worth much at all."

This is a great time to be alive if you are looking to buy a house. Or to refinance a house. Or to buy a car. Or even a line of credit, using your house as leverage. The interest rates continue to be almost historically low. So low, many investors are calling capital these days, "free money". And for the most part, it nearly is.

First I will talk about the "ying" - how cheap it is to borrow money. Because the Fed has let our prime rate fall so low to keep the economy from crashing, the effects that even John Q. Public feels are profound. How so? About four years ago, my wife and I replaced both our autos. For the first (and probably only) time in our lives, we bought two cars at once. However, with both a generous trade in on our former cars as well as a 1.6% interest on the new cars, the sticker shock was not shocking at all. If the purpose of having just about free interest was to stimulate car shopping, it sure worked for us.

For houses, I am seeing adds all the time now for rock bottom interest rates. When we built this house 34 years ago, interest rates were so high, we needed to get an ARM (variable rate loan) just to qualify. Our ARM was 10%, with a ceiling of 16% and a floor of 4%. I hated it. I told my wife if interest rates ever returned to normal where I could get an 8% fixed, I was going to jump at it. I knew that we would never see historically low rates like our parents had on their houses - 4 to 5 percent. Boy was I wrong!

Today, you can get either an upfront mortgage or a refinance loan for somewhere in the mid to upper 3 percent range. Wow! That puts a whole lot of houses which at one time would have been considered affordable, in the affordable range.

Now the "yang". If you have any money in the bank, all it is good for is keeping your money safe. It surely is not good for making much interest. Most savings accounts, including a CD is good for maybe 2%, with a whole bunch of conditions. I remember well when I first started working at Control Data one of the older men I worked with was ebullient one day. He was going to take some money out of his savings, pool it with his brothers and a cousin, and then buy a 18 month, $100,000 CD. It was going to pay 10% per year, or 15% for the 18 month term. He, his brothers and his cousin, were going to walk away in 18 months $15,000 richer.

I think back with some bemusement on that old adage from a Twin Cities bank, "Tuck a buck a day away". Okay - for what? Money is the bank is no good other than a holding spot. Money in the market can be very good right now, or this house of cards could come crashing down - big time. Bitcoin? Maybe, or maybe not. Metals? Many financial experts think they might be okay. 

I would like to hand out some free investment advice, but I am as confused as the next person. A financial expert I went to see had some simple and maybe sage advice. If you have some money right now, go buy something you want. Or spend it on an experience like travel. Why? The value of money is slipping away. Soon, it might not be worth much at all.