4 Ways You Could Be Benefiting From Interest Rate Hikes
It’s all over the news these days — interest rates continue to rise.
Student loan borrowers with variable rates and borrowers with credit card debt will certainly feel the pinch. Potential homebuyers who waited through historically low interest rates to save for down payments now face interest rates of 7% on a 30-year fixed rate mortgage, as of September 2022.
With the economy on the verge of recession (or already in one depending on who you talk to), this isn’t great news.
However, all is not doom and gloom when it comes to rising interest rates.
On the bright side, savers who take advantage of certain investment and saving products will see better than usual growth in their accounts.
4 Ways You Can Take Advantage of Rising Interest Rates
Let’s take a look at how rising interest rates could positively affect people with these types of accounts.
1. High-Yield Savings Accounts
A high-yield savings account (HYSA) is simply a savings account that offers higher interest rates than a typical savings account — which yields a .17% interest rate, according to the FDIC.
Some of the best HYSAs on the market currently offer interest rates around 2% or higher, having jumped again in the last few weeks. Those rates could continue to grow throughout the year.
Because of the higher return, HYSAs can have stricter guidelines, including an opening deposit, minimum balance and monthly maintenance fees. There are many free HYSAs with no minimums though.
That said, if you’re in a position to deal with those rules, a HYSA is a great opportunity to watch your savings grow.
2. Money Market Accounts
Unlike traditional savings accounts, a money market account is a savings vehicle that also has check writing and debit card privileges. These accounts also usually limit the amount of monthly transactions and transfers you can make.
They also have higher interest rates than traditional savings accounts, making them ideal for people who want to have quick access to savings that is growing, if only slightly, every month.
Some of the highest interest money market account rates in September 2022 range between 2% and 3%. Bask Bank currently offers an account with a 2.75% APY or the opportunity to earn 1.2 American Airlines miles for every dollar you spend annually.
3. Certificates of Deposit
A certificate of deposit (CD) is simply a savings tool that earns interest over a set period of time. The money remains untouched over that time period.
Because of the lack of liquidity, CDs typically have higher interest rates than standard savings accounts.
As of September 2022, the best interest rates on CDs hovered around 3%, with this account from Capital One offering 3.25% for a five-year CD and zero minimum balance. A $5,000 deposit into this particular CD would bring an $867 return over the five years.
4. I Bonds
Designed to protect against inflation, I Bonds have become popular in 2022 thanks to historically high interest rates.
These tools, also known as Series I Savings Bonds, use a fixed rate and an inflation rate to create the bond’s composite rate. The fixed rate doesn’t change through the life of the bond, while the inflation rate changes in May and November.
I Bonds are currently offering a composite rate of 9.62% through October 2022. That’s an unprecedented rate that could go up or — less likely — down after October.
You’ll lose some interest if you cash in the bond before five years, and you’re required to hold it for at least one year.
Robert Bruce is a senior writer for The Penny Hoarder.