Make the most of your money with higher interest rates
The Federal Reserve has increased interest rates seven times over the last year. Rising interest rates impact everything from what you buy to how you invest your money. It’s wise to reconsider your savings and investment strategies and make moves to help you maximize your returns. Follow these four tips to help you make more of your money in this current market.
Ways rising interest rates can help you save more
1. Reconsider certificates of deposit (CDs)
For the past several years, CDs have earned only negligible rates of interest. But as rates rise, you can expect to earn more. These accounts are federally insured, but charge penalties if you withdraw before the term is complete. Consider staggering laddering CDs, purchasing several with different maturity dates, so all your money won't be tied up in one—and as rates continue to rise, you'll be able to continue purchasing more lucrative CDs as they mature.
2. Boost your savings in money market accounts
Like CDs, money market accounts are experiencing widespread interest rate increases. If you need a place to keep your emergency fund or feel more comfortable retaining more cash and still have access to your funds, look for a money market account with a higher rate.
3. MAKE SHORTER-TERM INVESTMENTS
Interest rates are rising, but nobody knows for sure what will happen next or when. If you're purchasing CDs, bonds, or other investments to take advantage of rising rates, and rates continue to rise, you may want to buy more in six months or a year. Or if the interest rate environment reverses, you may want to return to equities. Because of this uncertainty, think about purchasing shorter-term investments, such as 6 or 12 month CDs rather than longer terms. That way, you'll have access to your funds in less time, so you'll be able to take advantage of the next rate change.
4. Consider variable-rate investment products
Some securities pay a rate of interest that varies over time, rather than a fixed rate of return. While these securities aren't a good idea when rates are decreasing, during a period of rising interest rates, they can allow you to earn more than the initial rate of interest. Their interest payments reset periodically based on a representative rate index.
All of these ideas are potential strategies to consider in a rising rate environment, and they could pay off for your portfolio. But before making any changes to your financial holdings, it's wise to consult your financial advisor.