IRA Interest rates.

[Guest Aja Mace]

I have heard Suze mention on several occasions about a 9% interest rate on IRA's. In one of the books, she speaks of a 8% return rate. Where are these rates found? I have searched banks and other financial institutions on the internet and have only found in the 4-5.6 range.

[John G]

Interest rate options:

As you see from the biz headlines, interest rates have been dropping rapidly since January when Greenspan/FED decided the economy was slowing down and dropped various rates. This has in turn lowered all sorts of interest rates. So, part of the problem is that info from more than a year ago is way out of synch with the market.

Like most investments, risk is linked to reward. The least risky investment is probably the insured CD at a bank, where the government says they will make you whole even if the bank fails. And... since the CD has so little risk, the bank offers the pawltry interest rates that you noted. {Note, you still have the long term risk of inflation eroding the value of your assets, but that is another story. You just have near zero risk of loss on principal.}

There are interest bearing assets outside of CDs that offer higher returns but come with increasing risk. For example, mortgage backed securities are generally more than a point higher. Corporations also float bonds that must offer a higher yield than the bank CDs to be viable. Low rated or junk bonds offer still higher yield because of their perceived risk. One way to reduce some of risk of bonds is to use the mutual fund approach, so you reduce the risk of a few bad apples.

Generally, there are not many sound investment options that will offer more than 8% right now.

You did not say much about your age or investing experience. I have a question for you... why are you focused on "interest" yielding investments? Over the long haul, you are better off investing in equities (aka stocks) which have averaged in the 10 to 12% annual appreciation. Stocks are currently "on sale", that is most prices are way off their highs. If you have more than a decade of retirement investing, you should be looking to stocks not interest bearing assets IMO.

I am not a big fan of Suze Orman. She tends to tell just part of the story and has some odd ideas. Too much hype and cliches.

[Guest Taxwoman]

John G-

I am with ya on the Suze thing