What to do with your money now that savings rates are up
Save more, spend smarter and grow your money
Making sure your money is working hard for you is an important skill to have if you want to have a sound financial situation. While it may be easy to keep all your money in a single account no matter what (“set it and forget it”), a policy like this could potentially cause you to miss out on hundreds if not thousands of dollars. are not. With interest rates rising, you’ll want to check where your money is stored and make sure you’re getting the best possible deal.
Why are savings account interest rates rising?
Savings rates vary for a number of reasons, but many banks link the interest rates on loans and the interest rates paid on savings accounts to the fed funds rate, which is regulated by the US Federal Reserve. As the fed funds rate rises, many banks are raising the interest rate they pay on savings accounts as well. The federal funds rate target has increased by 3% since the beginning of the year.
What is the best savings rate?
Savings rates in different banks and financial institutions change all the time. In addition to being updated when the Federal Reserve updates the fed funds rate, banks may update their savings rates at any time for promotion or other reasons. Mint keeps track of savings account rates, so be sure to see what types of rates are available to you. In October 2022, it is not unusual to see savings accounts paying 2%-3% or even higher.
what to do with your money now
It is important to understand how raising interest rates affect you and where you should put your money. If you have an interest rate close to zero in a checking or savings account, you may want to consider opening a new account with a higher interest rate. You can also get the welcome bonus by opening a new bank account.
Here are some other ideas for what you might consider doing with your money:
If you have any high interest consumer loans, paying off may be the best financial move for you. While it may make sense to keep some money in an emergency fund, it may not make sense to keep 3% in a savings account while paying 20% on a credit card balance. Instead, it might be wise to put some of your extra money into paying off your debt.
Open Certificate of Deposit (CD)
Like savings accounts, rates on certificates of deposit (CDs) have been rising since the beginning of the year. The downside of a CD is that you can’t use your money without penalty until the term expires. If you’re not sure what interest rates may be months or so down the road, you might want to be cautious about putting too much money in CDs. Still, they can understand a lot in the right situation.
Consider Series I Bonds
Another option to consider may be a Series I bond, which is offered by the US Department of the Treasury. I bonds are a type of savings bond that can help protect you from inflation. When buying an I bond, you earn a fixed rate as well as a rate that varies with inflation. Twice a year, the Treasury Department sets the inflation rate for the next six months. Currently, the interest rate for I bonds issued between May 1, 2022 and October 31, 2022 is 9.62%.
You can buy up to $10,000 per year in electronic I bonds per person, and you can receive up to $5,000 in paper bonds as part of your tax return. You can gift bonds to your children or buy additional I bonds. Buying bonds can be a good way to diversify your holdings, but you must purchase them before October 28 to ensure that your bond earns a 9.62% interest rate. Otherwise, whatever rate you will earn for the next six months, which will be announced in November 2022. An important note with I bonds is that you have to keep your money in the bond for at least 12 months, and you won’t get 3 months of interest if you cash out before the completion of 5 years.
With interest rates rising, it is important to constantly evaluate where you are putting any extra money you have. If you still have a significant amount of savings in an account that earns almost zero interest rates, you might want to shop around and find a better place to put your money. Paying off debt, buying a CD or buying a Series I bond may be the better option for you – so explore your options, be informed and make the best decision for your unique financial situation.
Save more, spend smarter and grow your money
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