The Fed raised interest rates again. Make these 3 smart moves now.
The Federal Reserve raised interest rates again last week, this time to a range between 5% and 5.25%. It marked the tenth time the Fed has pushed rates upward since March 2022, all geared toward lowering the pain felt by inflation.
"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run," the Fed said in last week's announcement. "In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy."
While the news of yet another rate hike may not be welcome for prospective homebuyers or owners looking to refinance, there are some ways to still take advantage of higher interest rates. This includes putting your money into a different sort of savings account, like a high-yield one, amongst other options.
Start by exploring your high-yield savings options here now and see how much more you could be earning.
3 smart moves to make after the Fed raised interest rates
Here are three smart, timely moves to make after the Fed's interest rate bump.
Open a high-yield savings account
A high-yield savings account is exactly what it sounds like — a savings account that earns a high yield on your deposit. While the average interest rate on a regular savings account is 0.39%, according to the FDIC, interest rates on high-yield accounts are exponentially higher and will likely go up even further now that the Fed has bumped rates again.
By doing a quick search online you can find a bank that's offering high-yield savings account rates of 3.5% to 4.5% or even higher. Apple's new savings account, for example, earns 4.15%, but there may be other accounts that offer closer to 5% APY. That's a substantial amount of money that you would otherwise be losing by keeping your funds parked in a regular savings account.
Using a $5,000 deposit as an example, that bottom line would grow to just $5,019.50 after a full year in traditional savings. But a high-yield account at 3.5% would reach $5,175.00. And you can likely make even more if you shop around for a higher rate, particularly after the Fed's latest move.
Learn more about high-yield savings accounts here now.
Take out your home equity
The interest rate environment has not been favorable for the real estate market. Higher rates make it more expensive to borrow and less appealing to refinance existing mortgages. That said, there are millions of Americans who are still sitting on substantial amounts of home equity. Home prices in 40 major cities actually rose in February, CBS News previously reported. But the long-term outlook for home prices is unknown. With the Fed's latest action, it's possible that home values could soon drop, making now a smart time to tap into your home equity via a HELOC or home equity loan.
Remember: Home equity isn't just calculated by how much of your mortgage principle you've paid down. It's also determined by the value of your home at the time of application. So if your home is still worth what it had been in recent months and years, it may make sense to take advantage now, before home prices possibly drop. You can potentially withdraw 80% to 85% of your existing equity to use to finance major repairs, renovations and expenses. But if you wait and home prices decrease, you'll have less to work with.
Start exploring your home equity options here now to learn if it's right for you.
Open a CD
A certificate of deposit account, also known as a CD, has one of the same chief benefits a high-yield savings account does, namely a significantly higher interest rate. CDs are currently offering interest rates in the 3.5% to 4.5% range although they too are likely to see a bump courtesy of the Fed's latest move.
That said, CDs don't operate as high-yield savings accounts do. You'll have to commit to locking your money away for a set time period before you can access it again. If you withdraw it before that date has arrived you'll likely have to forfeit most or all of the interest you've earned. But if you have money that you can afford to part with (terms vary from months to years), it may be worth doing, particularly if rates are substantially higher than what you're making with your current deposit vehicles.
Check today's CD interest rates now to learn more.
The bottom line
The Fed's latest interest rate hike may not be welcome news for many but it doesn't have to be totally bad, either. The silver lining is that interest rates are also growing for high-yield savings accounts and CDs, making now an opportune time to open one or both. It may also be worth investigating your home equity loan options as the amount of money your home is currently worth may not remain that high for the long term, especially in light of the Fed's recent activity.
