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A guaranteed rate can be a price, interest rate or ongoing charge that is assured for a set time by the company offering it. It could apply to returns on investments, interest on a mortgage, or a monthly charge for utilities. On the surface, these rates seem very attractive, but they may hide other factors that affect price, such as additional fees, or they may be very time-limited. Understanding the additional details about any guaranteed rate helps to determine its benefits.
The guaranteed rate, especially when it comes to interest charged or earned, requires some scrutiny. Some companies have a minimum rate of return for investors, which is guaranteed, and others base the rate of interest they charge on fluctuations in prime interest rate. This second group may have a guaranteed maximum rate so borrowers know they won’t pay over a specific amount of interest.
Sometimes having a minimum rate of return on investments or maximum flexible interest rate on loans is an advantage. Other times, people will make more money if they invest when interest returns are higher, even if they don’t stay the same. A minimum guaranteed rate might limit the amount people can make and keep it lower than the market rate, if interest rates increase.
On the other hand, flexible interest amounts on loans could be to the borrower’s advantage, if interest rates sink very low. Borrowers could then pay less than they would if they had a fixed rate. Both of these are judgment calls; people need to decide whether they prefer the safety of guarantees to take a little risk in the hope of making or saving money.
For those interested in guaranteed rates for any service, loan, or investment, some scrutiny is important. Since customers often like the idea of a guarantee, some don’t look too closely at what is really being promised. One thing that is very important to examine is fees extraneous to the guarantee. These could include charges for late payments, early withdrawal, contracting with a company for less than a set time, or others. Sometimes fees are so exorbitant they make a guarantee less than worthwhile, and customers should determine when this is the case by understanding all details about any guaranteed deal.
Another common feature of a guaranteed rate is time limitation. Credit companies might offer attractive rates for six months, cable companies could discount service for a year or banks might only guarantee interest rates for the first five years of a mortgage. Most time limitations lessen the worth of guarantees, though some may still be worth having. It is very important when a guarantee is limited that customers investigate how the situation changes after it lapses. They can then decide if the company, bank or other agency is still offering a good deal or if the guarantee functions more as a bait and switch to increase customer base and then charge above market prices or offer them few services or benefits.
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