Rising interest rates get a lot of negative press, but savvy savers can turn this financial challenge into an opportunity by utilizing deposit accounts that capitalize on a rising rate environment.
As interest rates go up, so do opportunities.
Every six weeks the Federal Open Market Committee (FOMC) meets to determine the rate at which banks buy and sell money. Sometimes the Fed lowers the Federal Funds Target Rate (FFTR) – which is good news for borrowers – sometimes it leaves the rate alone, and sometimes the Fed pushes the rate upward – which is advantageous to savers.
The Federal Reserve increased the FFTR for the fourth time this year in late July 2022 and has indicated its not done pushing rates upward. Those climbing rates mean bank rates on deposit accounts are moving upward, too.
So now is the time to connect with a trusted banking professional to explore what interest-bearing deposit accounts can do for you.
A tried and true standard for saving.
No, not under your mattress – try a traditional savings account.
A savings account is an interest-bearing deposit account that pays a modest interest rate. It is safe, FDIC-insured, fluid, and a great option for parking cash you want available for short-term needs. And it is easy to move your money in or out – access your savings online, at a branch or ATM, by electronic transfer, or direct deposit.
Savings account interest rates vary, and changes in the FFTR can trigger institutions to adjust their deposit rates. Some institutions offer high-yield savings accounts, which may be worth investigating.
Requirements vary among institutions regarding minimum balances or monthly fees, so meet one-on-one with your banker to get the details.
CDs—savings music to your ears.
As a result of the Fed raising rates, average CD interest rates are increasing across the board.
What is a certificate of deposit? A certificate of deposit, or CD, is a time deposit. CDs are like savings accounts in that they qualify for FDIC insurance up to the insured deposit limit. They differ from savings accounts in that the CD has a specific, fixed term from one month to five years, and usually, a fixed interest rate. Funds remain in the CD until maturity, at which time the client can withdraw the money and interest.
Because the money in a CD must remain untouched for the entirety of its term or risk penalty fees or lost interest, a CD is a good saving tool for clients who want to “set it and forget it” – and grow their money in the meantime.
Money Market Accounts—a savings account with flex power
Money Market Accounts, which may also be called Money Market Savings Accounts (or MMSAs), allow you to earn interest and rates are typically better than regular savings accounts.
Depending on the account structure, you may be able to write checks from your account. A higher minimum deposit is typically required with MMAs and MMSAs, so be sure to ask your banker for details.
Right-sized Savings Solutions
Depending on your financial needs and savings profile, your banker or financial services provider may be able to recommend a specialty savings solution separate from the tools mentioned to help you hit your goals.
Invite open and honest discussion with your banker or financial planner in order to identify the right tools for your budget and lifestyle.