How to use interest rate hikes to your advantage
News this week that the Federal Reserve is raising interest rates yet again may have been expected, but it wasn't particularly welcome. The Fed's move to raise rates to a range between 5% to 5.25% will make rates on mortgage and mortgage refinance loans even higher. Interest rates on credit cards and personal loans will also likely suffer, all in order to continue battling still-high (albeit lower) inflation.
That said, there is a silver lining to increased rates, particularly for those who have been diligently saving their money. When the Fed bumps rates they typically move up across the board, which means interest rates on deposit vehicles like high-yield savings and certificates of deposits (CDs) accounts will also grow.
So, if you don't have your money in one or both of these accounts, you may want to reconsider. You can start by exploring your high-yield savings account options here now to see how much more you could be earning.
How to use interest rate hikes to your advantage
There are multiple ways to take advantage of today's high rate environment. Here are two major ones:
Open a high-yield savings account
Even with recent rate activity, average interest rates on regular savings accounts sit around 0.39% currently. But interest rates for high-yield savings accounts — which work in the same way regular accounts do — are exponentially higher. Rates on these types of accounts are around 3.5% to 4.5% or higher, depending on the bank and other factors. And that's before this week's rate hike, meaning rates on these accounts are still heading upward.
If you don't have a high-yield account then you're likely losing money by leaving it where it is. Using a $5,000 deposit, for example, you'd only grow your savings fund to $5,019.50 after a full year (at the 0.39% rate). But if you simply transferred that to a high-yield account at 3.5% you'd easily grow your bottom line to $5,175.00 - a $155 difference! And that's at the 3.5% rate — you can easily find an account with a higher rate, particularly after the Fed's latest bump.
So don't hesitate. Start exploring today's high-yield savings accounts and start taking advantage of today's interest rate hikes.
Open a certificate of deposit (CD) account
Rates on CDs have also jumped in recent months. It's not uncommon to find CDs in the 3.5% to 4.5% range, although those are also likely to move upward in light of the most recent rate increase.
A CD is a smart way to protect and grow your money. But you won't be able to access it as you would a high-yield savings account. CDs are offered in a range of varying terms (or lengths) during which you'll lock your money away to earn interest at that higher rate. If you attempt to withdraw your money early you'll be penalized, perhaps significantly (you could lose all or most of the interest you've accumulated). Still, it could be a worthwhile alternative, particularly if the Fed stops issuing rate hikes, as it implied in its latest announcement. Account holders could also potentially "ladder" their CD accounts so that they have access to some portion of their funds at varying times.
As with most financial products and services, it pays to shop around to find a CD account with the best rates and terms. You can start your search here now or by using the below table.
The bottom line
Yes, interest rate hikes aren't great, particularly when they come on the heels of nagging inflation and higher prices for food and services. But savvy consumers can still take advantage of the environment by moving their money into a high-yield savings or CD account, or both. Just be sure to shop around for rates and terms that work best for you before signing on the dotted line.
You can explore your high-yield savings account options here now!
