Understanding interest rates and the impact of percentage points
- No matter how small, pay attention to movements in percentage points
- Small movements in percentage points can have a big monetary impact
We often hear about small percentage-point changes, from interest rates slipping to taxes climbing or stocks teetering. It’s easy to ignore these movements and think they don’t matter. But these seemingly small changes can actually be huge opportunities, potentially resulting in a thousand to even a hundred-thousand dollar difference or more.
Here’s a look at five opportunities to make small percentage-point changes work for you.
1. Review your mortgage rate
Current market mortgage rates are hovering near record lows. Have a rate higher than 5.5%? You could be missing out on significant savings.
A 5.5% rate lowered to 4.5% could save you thousands.
Use the Refinance Interest Savings calculator
2. Save 3% more income
The difference between penny pinching in retirement and living out your dreams could be just three percentage points.
Contributing 8% of your pay to your 401(k) is good, but contributing 11% could reap even greater rewards.
Use the Retirement Planner calculator
3. Get a credit card with a lower APR
Many people choose credit cards for the rewards they offer. But getting even a slightly lower APR may be the biggest perk of all.
Knocking an 18.9% APR down five percentage points can save you both money and time.
Use the Accelerated Debt Payoff calculator
4. Protect investments against inflation
The cost of many goods is rising, setting off fears that inflation could surge in the near future. Inflation can drastically reduce the value of your long-term savings if you don’t take steps to mitigate it.
Investing $25,000 in an inflation-protected fund can make a significant difference within a decade.
Use the Impact of Inflation calculator
5. Receive a higher investment return
You might think a one-percentage point difference in annual return on a mutual fund, bond or certificate of deposit isn’t a big deal. But over a lifetime, the effects can be huge.
A $100,000 portfolio that includes higher-risk investments may have the potential to return 8% each year vs. one with lower-risk investments that may only yield 4%.
Use the Investment Returns calculator