Save more, spend smarter, get more out of your money
Making sure your money is working hard for you is an important skill to have if you want to have a healthy financial situation. Keep all your money in the same account no matter what. While it may be easier to keep it in (“set it and forget it”), such a policy could result in hundreds, if not thousands, of missing dollars. As interest rates rise, it’s a good idea to research where your money is stored to make sure you’re getting the best possible deal.
Why did interest rates on savings accounts rise?
Savings rates vary for a variety of reasons, but many banks tie the interest they charge on loans and the interest they pay on savings accounts to the Fed Funds Rate, which is administered by the US Federal Reserve. As the Fed Funds Rate increases, many banks are also increasing the interest rates they pay on savings accounts. The federal funds rate target has increased by 3% since the beginning of the year.
What is the highest savings rate?
The savings rates of various banks and financial institutions are constantly changing. In addition to being updated when the Federal Reserve updates the Fed Funds Rate, banks may update their savings rates at any time for promotional or other reasons. Mint tracks rates for savings accounts, so be sure to check it out to see what types of rates are available. Not uncommon in October 2022 savings account Pay 2%-3% or more.
what to do with money now
It’s important to understand how higher interest rates will affect you and where you should put your money. If you have money in a checking or savings account with near zero interest, consider opening a new account with a higher interest rate. You may even get a welcome bonus when you open a new bank account.
I have some other ideas for what to do with the money.
repay the debt
If you have high-interest consumer debt, paying it off may be your best financial option. It makes sense to keep some money in an emergency fund, but when you’re paying 20% of your credit card balance, don’t put it in a savings account with 3% income. It may not make sense. Instead, it may make sense to use some of the extra money to pay off debt.
Open Certificate of Deposit (CD)
Like savings accounts, Certificate of Deposit (CD) interest rates have increased since the beginning of the year. The downside of CDs is that you can’t access the money without penalty until the term ends. If you don’t know what interest rates will be in a few months or years, you should be careful not to put a lot of money into CDs. Still, in the right circumstances, they make a lot of sense.
Consider Series I Bonds
Another option to consider is Series I bonds offered by the US Treasury. An I-bond is a type of savings bond that helps protect you from inflation. When you buy an I-Bond, you get a fixed interest rate and an interest rate that fluctuates according to inflation. Twice a year, the Treasury sets the inflation rate for the next six months. Currently, the interest rate for I bonds issued from 1 May 2022 to 31 October 2022 is 9.62%.
You can purchase up to $10,000 in electronic I-bonds per person per year, and you can also get up to $5,000 in paper bonds as part of your tax return. You can also gift bonds for your child or purchase additional I-bonds for her. Buying bonds is a good way to diversify your holdings, but you have until October 28th to make sure the bonds earn her 9.62% interest rate. Otherwise, you can earn your earnings regardless of the interest rate for her next six months, which will be announced in November 2022. If you cash out before 5 years are up, you will lose 3 months of interest.
Conclusion
With interest rates rising, it’s important to always assess where you keep the extra money you have. If you still have significant savings in an account with near-zero interest, you may want to shop around and find a better place to store your money. or buying Series I bonds may all be better options for you.
Save more, spend smarter, get more out of your money
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