How to take advantage of high interest rates

Given the persistence of inflation, stock market uncertainty, bank closings and a potential recession, it may seem that the only certainty in the economy today is bad news. In addition, the Federal Reserve’s Recent interest rate hikes Adding to the depression in the housing market.

But while high interest rates are a drag on home buying and refinancing, they offer a silver lining by improving the appeal of other investments and strategies. Savvy investors capitalize on higher interest rates to earn strong returns in a number of ways. If you want to take advantage of higher interest rates, there are several strategies to consider, including Open a high-yield savings account. You can now check your local savings options here.

How to take advantage of high interest rates

Here are four ways to take advantage of higher interest rates.

1. Open a high-yield savings account

Typically, savings accounts come with variable annual percentage yields (APYs), meaning they rise and fall as the Fed rates change. As such, you’ll typically enjoy higher savings account returns when interest rates rise.

and with a High Yield Savings Account, you can earn 17 times higher returns than a conventional savings account. Many online banks offer high-yield savings accounts of production From 4.00% and 5.00% APY. By contrast, the national average interest rate for savings accounts, including traditional accounts, has been just 0.37% in recent weeks.

The The Federal Reserve’s historically aggressive rate hikes Last year makes this a perfect time to open a high-yield savings account. Compare multiple banks to find the highest rate, but consider other important factors such as fees, balance requirements and ATM access. Start here and start earning more interest!

2. Open a certificate of deposit (CD) account

Certificate of Deposit Account Provide another opportunity to take advantage High interest rates. Recent Federal Reserve data list the average rate on 12-month CDs at 1.49%, nearly four times the average savings account yield (0.37%). As with high-yield savings accounts, many financial institutions offer significantly higher rates of around 4.5% to 5% APY for 12-month CDs.

To understand the higher returns with a CD compared to a traditional savings account, let’s examine some numbers. Let’s say you deposit $10,000 into a 12-month CD with a 4.5% APY. In this case, your money would earn $450 by the CD’s 12-month maturity date, while a similar deposit in a standard savings account would earn just $37 in interest over the same period.

Remember, you’ll usually earn more interest by keeping your money in a CD for a longer term. CD terms typically range from a few months to five years, with some banks offering CDs of up to 10 years. Explore your CD options online now to see how much you can earn.

3. Lock in before loan rates go up

Interest rates continue to rise in 2023. If you expect to need a new mortgage, personal or other loan soon, it may make sense to lock in a loan rate now before rates rise again.

A money-saving option is to combine high-interest credit cards with low-interest ones Debt Consolidation Loans. According to recent data from the Federal Reserve, the average credit card interest rate is around 20%, with the average 24-month rate personal loan Considerably less, only 11%. Lowering your interest rate can save you hundreds or even thousands of dollars over the life of the loan.

Most personal loans come with fixed rates, which insulate you from future rate hikes, with consistent payments throughout the loan term, regardless of future rate hikes.

Likewise, locking in a mortgage loan rate can save you money if interest rates rise. According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage as of the week ending April 6, 2023 was 6.28%. This rate represents a 1.56% gain from the same week a year ago.

If you took out a 30-year fixed-rate mortgage for $400,000 at 4.72% interest a year ago, you’d pay $2,079.36 and pay a total of $349,000 in interest over the life of the loan. However, that same loan with an interest rate of 6.28% in April 2023 would increase your total monthly payment by $2,470.68, bringing the total interest cost to $489,000.

4. Invest in corporate bonds

In a high-interest environment, corporate bonds can be an attractive investment option. These bonds are debt securities that corporations issue to raise capital. When you buy a corporate bond, you are essentially lending money to the company in exchange for regular income payments and the return of your principal when the bond reaches its maturity date.

When interest rates are high, these bonds typically offer higher yields, among other benefits such as:

• Fixed Income: Corporate bonds, a predictable source of income, can provide an attractive benefit to retirees. Payments can be issued semi-annually, quarterly, monthly or at maturity.
• Low risk: Bonds are not without risk, but historically they offer less risk and less volatility than stocks, especially investment-grade corporate bonds.
• Diversity: Investing in corporate bonds can help diversify your portfolio and reduce overall risk because their performance is not closely linked to stock market performance.

Interest rate outlook until 2023

Many investments, including those mentioned above, are greatly affected by rising and falling fluctuations in interest rates. Of course, no one has a crystal ball to know with 100% certainty Where interest rates lead in the future. Still, we can look to economic indicators to predict what might happen.

Ernie Goss, Ph.D., professor of economics at Creighton University Hyder College of Business, expects another rate hike in May. “The Fed has consistently defied investors by raising rates much faster than expected because of their perceived need to lower inflation expectations,” Goss said. “I expect another rate hike of 0.25% (25 basis points) at their next meeting on May 2 and 3. This will end on the short end.”

Goss continued: “These sales will continue until the Fed’s balance sheet falls below $3.5 trillion to $4.0 trillion. As a result, long-term interest rates will rise modestly through the remainder of 2023.”

Before investing, be sure to consider your risk tolerance. Also, regardless of any fluctuations in interest rates, consult your financial advisor or accountant to ensure that investments are consistent with your overall financial goals and strategy.

You can explore your high-yield savings options online now or use the table below to get started.