Three tips for understanding US property interest rates 5:24
(CNN) --
The Federal Reserve on Wednesday raised its benchmark interest rate for the sixth consecutive time to a range of 3.75% to 4%.
While there may be downsides in the form of higher costs for consumer loans, a positive result is that your savings may start to earn something after years of poor interest.
"Interest rates have risen at the fastest pace in 40 years," said Greg McBride, chief financial analyst at Bankrate.com.
"Mortgage rates have soared to 20-year highs, home equity lines of credit are at their highest in 14 years, and auto loan rates are at 11-year highs. Savers are seeing the best returns since 2008...if they are willing to shop around for the best options."
Here are some ways to invest your money to benefit from rising rates and protect yourself from their negative impact.
Bank savings: look for the best option among the different banks
How to save in times of inflation?
1:17
If you've been stashing cash at big banks that have been paying next to nothing in interest on savings accounts and certificates of deposit, don't expect that to change just because the Federal Reserve is raising rates, McBride said.
advertising
Thanks to measly interest rates from large institutions, the average rate on bank savings is now 0.16%, up from 0.06% in January, according to Bankrate.com's weekly survey on Oct. 26.
But all those Fed rate hikes are starting to have a more significant impact on online banks and credit unions, McBride said.
They offer much higher rates—some are over 3% today—and have been increasing them as benchmark rates go up.
Regarding certificates of deposit, there has been a notable increase in profitability.
The average rate on one-year certificates of deposit is 1.05% as of October 27, up from 0.14% at the beginning of the year.
Those with a term of one year and higher yield now offer up to 4%.
So look for the best option.
However, if you want to switch, make sure you choose only those banks and online credit unions that are federally insured.
Another high-yield savings option
Given today's high inflation rates, Series I savings bonds can be attractive because they are designed to preserve the purchasing power of your money.
They currently pay 6.82%.
But that rate will only be in effect for six months and only if you buy an I bond before the end of April 2023, after which the interest rate is scheduled to adjust.
If inflation declines, the I bond rate will decline as well.
There are some limitations.
You can only invest $10,000 a year.
You cannot redeem it in the first year.
And if you withdraw it between the second and fifth years, you will lose the previous three months of interest.
"In other words, I Bonds are not a substitute for a savings account," says McBride.
However, they retain the purchasing power of your $10,000 if you don't need to touch it for at least five years, and that's nothing.
They can also be especially beneficial for people who plan to retire in the next 5 to 10 years, as they will serve as a safe annual investment that they can fall back on if they need it in their early retirement years.
If inflation holds despite rising interest rates, you might also consider investing some money in Treasury inflation-protected securities (TIPS), according to Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Unlike I Bonds, TIPS are negotiable Treasury bonds, meaning they can be sold before they mature.
They pay a fixed amount of interest every six months based on your adjusted principal.
And that rate is set at the auction, but it never goes below 0.125%.
In the last auction in October, for example, the 5-year TIPS had an interest rate of 1.625%.
Where should you invest in this bear market?
Try wine, art and baseball cards
Credit cards: minimize the impact
When interest rates on bank overnight loans, also known as federal funds rates, rise, the various interest rates on loans that banks offer their customers tend to rise as well.
Therefore, expect credit card rates to rise soon.
Currently, the average credit card rate is 18.77%, up from 16.3% at the beginning of the year, according to Bankrate.com.
Six tips for eating healthy at home without breaking the bank
"This latest interest rate hike will hit consumers who are defaulting on their credit card balances the hardest by increasing their minimum monthly payments," said Michele Raneri, vice president of US research and consulting. from TransUnion.
Best advice: If you carry balances on your credit cards, which often have high variable interest rates, consider transferring them to a zero-rate balance transfer card that stays at 0% interest for 12 to 21 months.
"This protects you from future interest rate hikes and gives you a clear path to pay off your debt once and for all," McBride said.
"Less debt and more savings will allow you to better weather rising interest rates, and it's especially valuable if the economy deteriorates."
Just be sure to find out what fees, if any, you'll have to pay (for example, a balance transfer fee or an annual fee), and what the penalties will be if you're late or miss a payment during the term. zero rate.
The best strategy is to always pay off as much of your existing balance as possible, and to do so on time each month before the zero-rate period ends.
Otherwise, the remaining balance will be subject to a new interest rate that could be higher than what you had before if rates continue to rise.
If you don't transfer your debt to a zero-balance card, another option might be to take out a relatively low fixed-rate personal loan.
Is it convenient for me to refinance a mortgage in the United States to take advantage of the "equity"?
Current interest rates range from 3% to 36%, with an average of 11.27%, according to Bankrate.com.
But the best interest rate you can get will depend on things like your income, your credit score, and your debt-to-income ratio.
Bankrate's tip: To get the best deal, ask multiple lenders for quotes before you fill out a loan application.
Home Loans: Secure a Fixed Rate Now
Mortgage interest rates have risen over the past year, jumping more than three percentage points since January.
The average 30-year fixed-rate mortgage, for example, averaged 7.08% in the week ending October 27.
That figure is more than double what it was a year ago.
And mortgage rates could go even higher this year.
So if you're about to buy a home or refinance one, lock in the lowest rate available as soon as possible.
That said, "don't jump into a big purchase that doesn't suit you just because interest rates may go up. Rushing into a big-ticket item like a house or car that doesn't fit your budget is a invitation to trouble, regardless of how interest rates behave in the future,” said Texas Certified Financial Planner Lacy Rogers.
If you already own a home with a variable-rate home equity line of credit, and used part of it for a home improvement project, McBride recommends asking your lender if it's possible to lock in your rate. interest on the outstanding balance, thereby creating a fixed-rate home equity loan.
Let's say you have a $50,000 line of credit, but you've only used $20,000 for a renovation.
You would request that a fixed interest rate be applied to the $20,000.
If that's not possible, consider paying off that balance by taking out a Home Equity Line of Credit (HELOC) with another lender at a lower promotional rate, McBride suggested.
Stocks: Broad Exposure and Pricing Power
How can you invest like Warren Buffett?
0:43
When it comes to investing, two big factors to consider are the effects of inflation on businesses and consumers, and the geopolitical outlook.
As for inflation, Ma pointed out that the cost of services, which constitutes an important part of the consumer price index, is the thing to watch.
"Although wage pressure has probably peaked, the labor market still looks quite strong and that could keep wage growth high and filter into services inflation for some time," Ma said.
Turning to geopolitics, he added: "The market appears to have put geopolitical concerns in Europe on the back burner, but as winter approaches there is a risk that the energy war will escalate again."
Financial services companies can do well in an environment of rising rates because, among other things, they can make more money on loans.
But if there is an economic slowdown, a bank's total lending volume could go down.
Turning to real estate, Ma said "sharply high mortgage and interest rates are a challenge ... and that headwind could linger for a few more quarters or even longer."
So Ma suggests making sure your global portfolio is broadly diversified across equities.
The idea is to hedge your bets, as some of those areas will come out ahead, but not all.
That said, if you're considering investing in a particular stock, take into account the company's pricing power and the consistency of demand for its product.
For example, technology companies do not usually benefit from higher rates.
But since software and cloud service providers issue subscription prices to customers, those prices can rise with inflation, said certified financial planner Doug Flynn, co-founder of Flynn Zito Capital Management.
Bonds: short term
401(K) or annuity?
6:02
If you already own bonds, prices will fall in a rising rate environment.
But if you are about to buy bonds, you can take advantage of that trend, especially if you buy short-term bonds, that is, one to three years, since prices have fallen more than usual relative to long-term bonds.
Normally, they go down at the same time.
"There's a very good opportunity in short-term bonds, which are very out of whack," Flynn said.
"For those in the higher income tax brackets there is a similar opportunity in tax-free municipal bonds."
Municipal bond prices have fallen significantly, yields have risen and many states are in better financial shape than they were before the pandemic, he noted.
Other assets that may do well are so-called floating-rate instruments of companies that need to raise cash, Flynn said.
The floating rate is pegged to a short-term benchmark rate, such as the fed funds rate, so it will go up whenever the Federal Reserve raises rates.
But if you're not a bond expert, you'd be better off investing in a fund that specializes in making the most of a rising rate environment through floating rate instruments and other bond income strategies.
Flynn recommends looking for a strategic income or flexible income mutual fund or ETF, which will hold a range of different types of bonds.
Personal Financeinterest rates
