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  • Writer's pictureRafael Gutierrez

3 Simple ways to take advantage of rising rates


 

Interest rates have been steadily rising for the past few years. While some people may view this negatively, there are benefits to rising interest rates.

Current Rates


The current federal funds rate is 2.25% and is expected to rise again later this month to 2.5% with more increases expected over the next few years. The federal funds rate is the short-term interest rates banks borrow from each other which in turn affects the the rates they offer their customers. The chart below illustrates the recent uptrend in rates over the past few years.




What could you do to benefit from rising rates?


Open a Savings Account



If you do not currently have a savings account, now is the time to consider opening one or switch to one with higher yields. With interest rates on the rise, some banks are offering rates greater than 2.00%. This creates an opportunity to earn more interest on your savings in a relatively low-risk environment as most banks are FDIC insured up to certain amounts. To check if your bank is covered, head over to the FDIC website to find out. Depending on your liquidity needs, you can even consider a CD with rates greater than 3.00%.

Take advantage of money market accounts and funds


Money market accounts are very similar to savings accounts in that you earn interest and are typically FDIC insured, with the added benefit of writing checks. Money Market funds - If you already have a brokerage or retirement account, take a look at how your cash is being managed. Most brokerages will offer a deposit sweep program which allows cash to be invested in money market funds. The advantage here is that you may be able to earn a higher yield than enrolling in a typical cash sweep program. The main disadvantage is that money market funds are not FDIC insured and even though they are considered safe, they can still lose money.


Pay off debt



While rising interest rates may boost your returns in savings accounts, it will negatively impact any outstanding debt. Rates on credit cards, certain types of mortgages, home equity lines of credit, student loans and other personal loans will typically rise. If you have outstanding debt, develop a plan to pay it down to minimize interest payments as rates increase. Seek to pay off debt on high interest credit cards and consider consolidating by using balance transfer offers to lower your rates. For more tips on how to reduce debt, money savings tips or are interested in our investment management services, please feel free to contact us.


If you enjoyed this blog post, please comment below and let me know what you are doing to take advantage of rising rates.

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