How the Economy Impacts the Interest Rates Paid for Savings 

Welcome back to The Sunstone Way. 

Many investors prefer to put their money in a safe, reliable place that pays a set amount of interest – think about the bank savings accounts your parents started for you when you were a child. There are different levels and types of fixed income approaches such as treasury bonds or CDs, as well as private debt vehicles, also known as fixed rate notes. 

All of these instruments have one thing in common. The investor or noteholder purchases the item at a specific time, with a specified rate of return set at the time of purchase, so that it is available when they need it for other purposes.   

That rate of return, or the interest paid, depends on a number of factors, including how much money is invested and how long the investment stays in the hands of the lender. Pretty much anything that relies on an interest rate is driven by the underlying Federal funds interest rate. From there, higher risk or longer terms will dictate a higher rate over the fed funds rate. Shorter and less risky ventures will pay a rate closer to the fed funds rate. 

When people hold stocks in a company, that company sometimes pays dividends. But that depends on whether the company increases in value. Another option is to invest in debt, with the promise of payment at a fixed rate at regular intervals. That’s known as a fixed income fund. 

In Today’s Economy 

The financial world is in a different place today than it was a year ago. In June 2022 we were beginning to come out of the pandemic, interest rates were low and we were facing the beginning of high inflation. In response, the Federal Reserve System board began raising the country’s basic interest rates. That pushed up the interest being charged for loans and being paid on all forms of savings accounts. 

While increasing interest rates can be good for some—higher rates of return for savings accounts or CDs at your local bank—rate increases also make real estate loans and small business loans more expensive which can slow down business expansion, real estate sales, and economic growth. All of this means lots of change…and lots of new choices for investors like Sunstone Management. 

Here at Sunstone we remain excited about the strength and ingenuity of the American economy. Even when the economy is going through a big transition like it is today, we see great opportunities to work with partners—including government, education, and private capital—to design new solutions and fill the gaps facing the next generation of entrepreneurs. Innovation through partnership. That’s The Sunstone Way.  

John Keisler 

CEO & Managing Partner 

Sunstone Management Inc. 

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More About Sunstone Management 

Sunstone Management is a diversified private capital sponsor firm located in Southern California that invests in diverse early-stage technology entrepreneurs who seek to build great companies. We believe in the aspirational power of the American economy to attract and inspire investors and entrepreneurs from throughout the world. We deliver new and exciting opportunities for economic growth through the creation of innovative public-private partnerships, and our unique experience across government, education, and private sectors. Identified by Financial Times as one of America’s Fastest Growing Companies three years in a row.

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