Ask the Fool

Q: With interest rates so low, I figure they will probably rise in the years ahead. Is that good or bad? — P.D., Green Bay, Wisconsin

A: High interest rates are great for savers, as bank accounts and certificates of deposit (CDs), among other things, will offer more interest. Annuities bought when rates are high will pay out more, too. Freshly minted bonds will offer higher interest rates — but bond funds, and those looking to sell existing bonds with older, lower interest rates, will take a hit. Meanwhile, higher interest rates can hurt interest-sensitive sectors of the economy. The price of gold often falls when interest rates rise, for example. Real estate is especially affected: When rates are high, homebuyers (even those with high credit scores) will face steeper mortgage payments and may have to buy lower-cost homes — or may end up deferring purchases. Sellers might have to reduce their asking prices to make their homes more affordable for prospective buyers. Those with adjustable-rate mortgages (ARMs) will see their mortgage payments gradually increase.