Higher interest rates can be a mixed bag. On the one hand, savings accounts, certificates of deposit and bonds will pay you more for your money. However, higher rates are usually accompanied by higher inflation. High inflation has pernicious effects on an economy, including lower living standards, reduced savings, and uneven and unpredictable impacts on different sectors of the economy, some of which do well while others get decimated, causing businesses to go bankrupt.
In the context of estate planning, higher rates also favor some planning strategies while discouraging others. Low interest rates benefit Grantor Retained Annuity Trusts, which were the focus of the November, 2020 NEET Notes, and Charitable Lead Annuity Trusts. Both of these planning vehicles perform best when interest rates are in the low single digits, which as been the case for much of the past 15 years.
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