Smart Money Moves to Make While Interest Rates Remain High
As the Federal Reserve continues to hold interest rates at elevated levels to combat inflation, consumers face both challenges and opportunities. While borrowing has become more expensive, savers can take advantage of higher yields and rethink their spending habits. Whether you’re focused on building financial security or reducing debt, now is a good time to reevaluate your strategy. Below are four smart money moves to consider while interest rates remain high.
Open a Certificate of Deposit (CD)
With interest rates at their highest in years, certificates of deposit (CDs) have become a more attractive option for savers. These accounts let you earn a fixed interest rate in return for keeping your money untouched for a set period, anywhere from a few months to several years.
Because CD rates tend to rise alongside federal interest rates, now may be a smart time to lock in a competitive return. Just be sure to choose a CD term that fits your financial plans, as early withdrawals could lead to penalties.
Pro tip: If you want to maximize your CD returns without sacrificing access to your money, consider a CD ladder strategy. This works by splitting your savings across CDs with different maturity dates—like one-year, two-year, and three-year terms. As each CD matures, you can either reinvest it or take the money out. This flexible savings strategy helps you earn more with longer-term CDs, but still gives you regular access to your funds.
Park Extra Cash in a High-Yield Savings Account
Traditional savings accounts often offer minimal interest, but high-yield savings accounts, especially those from online banks, are currently offering annual percentage yields (APYs) of around 4%. The interest rates are variable, which means they’ll fall once the central bank cuts the federal funds rate. So now is an opportune time to open a high-yield savings account and take advantage of the current rates. High-yield savings accounts are FDIC-insured (up to applicable limits), so your funds are protected while you earn higher interest.
Push Pause on Big-Ticket Purchases
High interest rates mean financing large purchases like a car, home, or home renovation costs more. If you’re considering taking on new debt, think about whether the purchase is essential or can wait.
For example, auto loans and mortgages carry much higher APRs than just a few years ago, which can significantly increase the total cost of ownership. Delaying large purchases helps you avoid high financing costs and gives you more time to save.
Focus on Paying Down Debt—Especially Variable-Rate Debt
When interest rates rise, so do the costs of carrying balances on variable-rate credit cards, personal loans, and lines of credit. If you have high-interest debt, now is the time to prioritize paying it down.
Start by targeting credit card balances, which often carry APRs north of 20%. You may also want to consider consolidating debt into a lower-rate fixed loan or transferring balances to a 0% introductory APR credit card—just be sure you can pay it off before the promotional period ends.
Final Thoughts
High interest rates present a mixed bag for consumers, but they also create an opportunity to take control of your finances. By making strategic moves now, like saving with higher yields and cutting back on costly borrowing, you can strengthen your financial position no matter where interest rates head next.