I should have explained myself better. I'm assuming he's in the US. The savings rate comes into play when you consider that it is determined by looking at the prime lending rate between banks, which is currently at or near 0% in the US.0
But it's all about risk. If you want 0 risk to your principal, you are going to get 0% interest rate. If you put your money in the bank where it is (hopefully) FDIC insured, you get a bit of risk but not a lot, so you get a bit of interest. Since risk and reward (your interest) are correlated, the higher your return (8% compounded before inflation) the higher risk bracket you are in.
If US interest rates go up, the bank savings rate will go up as well, making it easier to get to 8% annual compounding rate with little risk. That means any other type of investing (equities, etc) will become less risky at the 8% level (but not without some risk).
you can spend an infinite amount of time talking about investing, but yeah it's stocks, counting on diversity for risk management. And it's more about dividends than stock price http://www.mrmoneymustache.com/2012/01/02/guest-posting-the-... . The goal is to get a steady stream of cash now, not have assets that you plan on selling when you get to 70.
But it's all about risk. If you want 0 risk to your principal, you are going to get 0% interest rate. If you put your money in the bank where it is (hopefully) FDIC insured, you get a bit of risk but not a lot, so you get a bit of interest. Since risk and reward (your interest) are correlated, the higher your return (8% compounded before inflation) the higher risk bracket you are in.
If US interest rates go up, the bank savings rate will go up as well, making it easier to get to 8% annual compounding rate with little risk. That means any other type of investing (equities, etc) will become less risky at the 8% level (but not without some risk).