How Higher Interest Rates Can Bring You More Profits

Image by: 401(K) 2013
By Michael Sterling

The Federal Reserve has been tiptoeing around the idea of increasing interest rates in the coming months. Although this means we will see a significant difference from the record-lows we’ve had these last few years, will it make future loan-seekers weary? If you’re smart, not only can you make it through the spike, but you will end on top.

When interest rates were at a staggering 2.19% in March, loan-seekers thought it was the best time to grab their loans. What we failed to see is that banks didn’t feel comfortable with the idea. Giving average-credit loaners $100K loans at a very lower interest didn’t seem like a safe gamble.

Lower interest rates will always bring lower revenue. This is, after all, how banks make a great chunk of their money. When rates begin to rise again, though it might appear as if it’s a good thing for the banks, Cyrus Sanati of CNN Money seems to think differently. Sanati claims that loaners will be far too uncomfortable with the new numbers.

It’s predicted that with the spiked rates, people will be less likely to take out loans, thus putting the dunce cap back on the banker’s heads, because who is going to to take out a loan they know they can’t afford? Use this idea to hit a profitable home run.

The “Credit” Game

There can be a sneaky way behind the loan curtain if you’re careful. Some economists are predicting that since the Federal Reserve’s plan to lower interest rates in 2008 to help rebuild the economy didn’t go quite as planned, this next move won’t either.

Think about it. If people are too weary to take out loans in the coming months as the rates grow higher, banks will have to take drastic measures, meaning they will need to lower their credit standards to attract more loan-seekers out of desperation.

So if you, as an individual, don’t have a very good credit score, you now may have a better chance at getting approved for a big loan – whether it’s for home ownership, company start ups, education or medical. There are good and bad things to this strategy.

If you aren’t confident that you have the means to pay back the loan plus interest, don’t seek a loan. However, for others it could be a significant lift, one that might take them to the next level in their investing future.

The “Stock” Game

In the stock market, Wells Fargo (WFC) rose 10%, JP Morgan (JPM) grew 10% and Bank of America rose 250% – all within THIS year. Last month alone, bank stocks rose 9%. Investors clearly have faith that rate increases will not effect their business. There is a flip side to this however.

Short-term rates have a much bigger impact on investor’s profits, which is another reason why banks are concerned. What the Federal Reserve is doing is a long-range plan. With this, comes a very unclear future. Though there is great opportunity to make money short term here, don’t just let it sit. Be smart and know when to cash out before the strategy changes it’s course.

Go Where The Money Is

Major companies have prepared themselves with killer amounts of cash on their balance sheets. Because of this, they might be able to bring higher stock returns. Take notes. According to Moody’s, companies outside the banking and financial sector held $1.42 trillion in cold hard cash at the end of 2012!

Leading the pack (in order from highest to lowest) are Apple (AAPL), Microsoft (MSFT), Google (GOOG), Pfizer (PFE), and Cisco (CSCO).

With every point increase in interest rates, these companies have potential to add billions of dollars every year to it’s revenue. To break it down in numbers, Apple can get up to $1.50 per share and Google might get up to $1,000 per share! These companies know how to spend their money, go where the money flows!

These companies are sure to not only survive the interest raises, but will flourish as more interest brings more cash.