August 16, 2024
High-Interest Rate Hacks
According to Investopedia, “the Federal Reserve announced its eighth consecutive rate hold, after a historic 2022–2023 rate-hike campaign pushed the federal funds rate to its highest level since 2001. The central bank's massive increases to the benchmark rate were aimed at tamping down decades-high inflation. This elevated benchmark rate has created a heyday for savers with cash in the bank, as the fed funds rate directly influences the rates banks and credit unions are willing to pay on savings, money market, and certificate of deposit (CD) accounts”.
With rates higher than they’ve been in recent history, here are 4 money moves you can do right now to make high interest rates work for your wallet:
1. Open a high yield savings or money market account, many are currently paying more than 4% interest. These accounts allow you full access to your money at any time, but at a higher interest rate than a standard savings account. Keep in mind, the rates on these accounts can change at any time, higher or lower, but there’s no risk of losing value.
2. Open a Certificate of Deposit (CD), many of which are currently paying more than 5% interest. CDs have a set rate of interest for a specific period, typically ranging anywhere from 3 months to 5 years. One benefit of a CD is your interest rate is locked in, even if interest rates go down. The Federal Reserve is hoping to start lowering interest rates in the next year, so for a portion of your cash, it may make sense to establish a longer-term CD so that you can lock in these higher rates for an extended period.
3. Pay off high interest debt, first. For example, if you have a home equity loan with a variable rate that has increased to 8% or higher, or credit card debt, direct any extra funds to pay off this debt to reduce the amount of interest you’re paying over the life of the loan.
4. Hold onto low interest debt. If you have a car loan with a 3% interest rate, it probably doesn’t make sense to make extra payments when you can earn more interest in a money market account or a CD. If you’re moving to a new house and you have a 3% interest rate on your old house, consider keeping the old house and using it as a rental. This is historically one of the lowest interest rates you may get in your lifetime.
If you are looking for guidance in your investment journey, we’re here for you! Meet with a BCU Wealth Advisor to talk through your financial plan.
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This blog post has been produced in partnership with a BCU Wealth Advisor. To learn more about BCU Wealth Advisors , visit BCU Wealth Advisors.
This communication is not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Diversification among investment options and asset classes may help to reduce overall volatility. Past performance does not guarantee future results.
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