The Fed has raised rates again. Here's how savers can benefit.
June's interest rate pause provided some much-welcomed relief to consumers after more than a year of regular rate hikes. But that relief, unfortunately, was short-lived.
As expected, the Federal Reserve announced another rate hike following its July 25-26 meeting. The increase — a quarter of a percentage point — brings the benchmark interest rate to the highest it's been in 22 years.
While this is bad news for borrowers whose monthly debt payments will increase, it's good news for one group: savers.
When interest rates are high, savings rates go up and savers can earn greater returns on their deposits. By taking the right actions now, you can make the most of today's sky-high interest rates and grow your savings faster.
Boost your savings with a high-yield savings account today.
The Fed has raised rates again. Here's how savers can benefit.
There are two smart — and easy — ways you can use the latest rate hike to your advantage.
Open a high-yield savings account
One of the simplest ways to benefit from newly raised interest rates is to open a high-yield savings account. These accounts provide many of the same benefits as regular savings accounts, including FDIC protection, but they offer rates that can be 10 times higher (or more).
"High-yield savings accounts are typically paying much higher rates than most standard bank savings accounts," says Mike Hunsberger, ChFC, CFP, CCFC, owner of Next Mission Financial Planning. "There are currently numerous high-yield savings accounts paying more than 4% in interest. Many bank savings accounts pay less than 1% in interest. Regular savings accounts aren't even keeping up with inflation that is still over 4% year over year."
Today's top high-yield savings accounts boast APYs up to 5.05%, while the national average for a regular savings account is a paltry 0.42%. By opening a high-yield account now, your money has more time to benefit from the current high rate environment.
Find out how much you could earn with a high-yield savings account here.
Lock in a high CD rate
Another way to take advantage of the Fed's interest rate hike is to open a certificate of deposit (CD) while rates are elevated. When you open a CD, you lock in the current interest rate for the entire CD term, which typically ranges from three months to five years. That means if interest rates go down during that period, you'll still enjoy the earnings from today's high rates.
In general, longer-term CDs offer higher rates than short-term ones. However, it's worth noting that many CDs charge a penalty if you withdraw funds before the term expires. If you think you'll need to access your money sooner than later, you may be better off considering a no-penalty CD or creating a CD ladder.
With the CD ladder strategy, "you build a series of CDs at varying maturities and, as a CD matures, you reinvest the maturing CD into your longest-date CD of your ladder," explains Joe Marques, CFP, wealth advisor and co-CEO of Bolin Creek Wealth Advisors. "This creates a sort of rolling CD structure to help you manage interest rate risk."
Start exploring your CD options online now.
The bottom line
The Fed's latest interest rate hike may be bad news for many consumers, but savers are one of the groups that stand to benefit. By opening a high-yield savings account or CD (or both) today, you can boost your returns and make the most of the money you're putting away for the future.
