What to do with money when the Fed raises interest rates

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Here’s what: Now is a great time to save money and invest strategically

Federal Reserve raised interest rates 0.75 percentage points once again this week. The goal is to cool the economy and bring high inflation under control, but repeated hikes will cause “some pain” for families and businesses in the short term, as Fed Chair Jerome Powell put it.

If you’ve been shopping for a home lately or looking to borrow money for your business, you’re undoubtedly well aware of that “pain.” Just this month Mortgage rates jump up to 6% For the first time since 2008, there has been an astronomical increase in the 2% range from their initial pandemic-era.

and late Inflation likely eating away at every extra dollar In your budget, there are some smart things you can do with your money right now to help it grow while interest rates remain high.

Switch to a high-yield savings account

If you have savings in normal bank savings account (currently Average earnings of 0.17%) run, don’t walk, to open a high yield savings account, Many HYSAs are currently offering 2% or more. Make sure you choose an FDIC-insured account.

Buy I Bonds and Short-Term Bonds

The “I” in Series I savings bonds stands for inflation – meaning the rate offered by these bonds is tied to the rate of inflation (as we all know currently is sky high). Currently, Series I bonds are paying 9.62%, and individuals can purchase up to $10,000 annually.

“If you have the cash that you’re certain you won’t need for 12 months, consider buying a Series I bond,” says the financial planner. Natalie Taylor, “Rates reset every six months, but if inflation and interest rates remain high, Series I bonds will continue to pay very attractive interest.”

Brian MattoxIt’s tempting to buy short-term bonds right now, says Kendall Capital’s vice president and chief investment officer. ,Short Term (Two Years) Treasury are paying equal to or more than 10-year or 30-year treasuries,” he says. Also, “short-term debt instruments can be reinvested after maturity to provide even more leverage in a rapidly rising rate environment.” rate can be earned.”

Avoid Variable Rate Loans

If you have to make a big purchase now, try to avoid using variable-rate loans to do so. For example, says Taylor, if you’re buying a house, try lock in a fixed rate mortgage – You can always refinance on the road if rates drop again.

“The advantage of a fixed-rate mortgage is that your interest rate will never change, but with an adjustable-rate mortgage, your interest rate may increase if interest rates continue to rise,” she says.

Now is also a good time to consider Balance transfer offer on your credit cardBecause your monthly interest rate can change when the Fed raises rates.

The financial planner says, “If you’re carrying a high balance on your credit card, consider transferring the balance to a zero-rate balance transfer card, which locks in at a zero rate for a temporary period. ” jovan johnson,

Stick to your long term investment plan

If you absolutely don’t want to do anything right now because thinking about money is so overwhelming, that’s okay. In fact, it’s the best thing you can do with your investments, especially your retirement savings.

“Stay true to your long-term investment plan,” Mattox says. “Don’t let the Fed’s interest rate fluctuations and subsequent equity market volatility alter portfolio allocation in any hasty, large way.”

— Stephanie Hallett, Senior Editor at Personal Finance Insider

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