confused - variable rate vs fixed rate?

[imag]

can someone explain to me the advantages and disadvantages of each in a savings account? which do you prefer and why?

[jpg7n16]

Fixed - won't change. Good if earnings rates are going down. Bad if earnings rates are going up.
Variable - will change. Bad if earnings rates are going down. Good if earnings rates are going up.

On a savings account, the numbers are so minimal that I do not really care either way. I'd prefer variable, as rates can't really go much lower.

On a loan, I prefer fixed. It keeps my expenses known, predictable and manageable.

[Seeker]

JPG is correct.

I prefer "fixed" on all sides though.

I ladder savings. So they're relatively current interest rates within a month's timeframe.

[fiscallyprudent]

Your question has a lot of significance when dealing with long term mortgages. In such cases, fixed is almost always preferred.

Fixed rates offer the consumer the opportunity to lock the interest rate till the end of the loan. If interest rates increase, then you won't have to make higher payments. Obviously, if rates fall, your loan won't be affected and your monthly payments will remain as high as they used to be at the beginning of the loan.

Variable interest gets constantly adjusted according to the interest rates that are applicable on the current market. Simply explained; when the rate in the economy goes down a lower interest rate is applied on the home mortgage. But this process works both ways; when the rate in the economy is high, a higher interest rate is charged on the home mortgage; which signifies that the monthly payment of the consumer will increase.

[Drac]

The interest rates now are very low. We are probably at a historical minimum. That is the reason why I will not recommend to get a fix rate at this point. I believe a variable rate now is a better option as rates will probably increase in the future. When the interest rates are very high, then will be the time to use the fixed rate account just in case they get worse.

[disneysteve]

You asked about a "savings account." There really is no such thing as a fixed-rate savings account. All savings account and money market account rates get adjusted based on market conditions. There are fixed rate things like certificates of deposit. If you are talking about those, I'd agree with not locking up your money for a long term at this point since rates are so low. I wouldn't go with anything more than a year duration. Yes, 2 or 3 or 5 year CDs are paying more but I don't think it is worth the risk because rates are likely to climb during that period and you'd miss out.