Interest Rate Update & What to do with your money.
Since March 2022, the Federal Reserve has hiked interest rates 8 times and has suggested that there might be one more hike in the near future. Year-over-year inflation has cooled tremendously, from a high of 9.1% in June 2022 to 5.0% in March 2023. As inflation continues to trend back to our normal of 2% per year, the Federal Reserve will stop hiking interest rates. Despite cooling inflation, my budget is still fighting back the 13%+ price hikes we have endured the last 2 years. Unfortunately, this hike is unlikely to reverse as we usually only experience deflation (price drops) during a recession.
All of this being said, we might be at a peak for what we can get in high yield savings accounts, CDs (certificate of deposits) and bonds. If/when we hit another recession, the Federal Reserve will drop interest rates and our current rate of returns will vanish. On the plus side, this might also be the peak for high interest rates on new loans. Keep in mind that nothing is guaranteed. There could be a traumatic world event that knocks everything off its current course.
Here are your current options for savings and long term savings:
High Yield Savings Accounts 3.75-4.25%
High yield savings accounts come from online banks like Varo, Ally Bank, Marcus, CIT, etc. This is a great place for your everyday savings. Most of these banks have zero requirements for account minimums and zero fees. Read my blog post for more info about these accounts or take my savings class.
Certificate of Deposit 4.80% (18 months) 4.25% (5 years)
CDs are better for emergency funds or longer term savings. If you have to, you can withdraw this money but will lose a few months of interest. You are not in jeopardy of losing your principal (at least with the CDs I have seen). At Ally Bank, you can get an 18 month CD for 4.80% and a 5 year CD for 4.25%. Currently, my husband and I have both. We locked in more of the 5 year CDs on the bet of a recession and all current interest rates reverting back to 0.50%. This is what happened to us during 2020. We had 18 month CDs paying 2.5% and when they matured, interest rates were now 0.50%.
IBonds 4.30%
Remember the time when IBonds were paying 9.62%?!!!! Those were the days. Although inflation is still high, inflation is not increasing the way that it was (good for the budget, bad for our investment). New IBonds are paying 4.3% from May 2023 – October 2023 with 0.90% being fixed for the life of the bond. Remember that the interest rate is a yearly rate so really you are getting 2.15% for the next 6 months (the previous rate was 6.89%). This rate is comparable with CDS and HYSAs. I like the 0.90% fixed rate so my husband and I will probably add some of our long term savings to our IBond accounts. Here is the blog post to review information on IBonds.
If all of your savings is at Wells Fargo, Bank of America or Chase, you are doing yourself a serious disservice as they are only paying you 0.01-0.03% while these other options are giving you 3.75% at a minimum. No, we are not keeping up with inflation but we are doing significantly better using the options above than keeping our savings at a big bank.
Today is a great day to open a high yield savings account! If you want to get serious about cleaning up your finances and building the life you deserve, sign up for my free webinar, sign up for my classes or work with me one-on-one.
Disclaimer: I am an educator, not your personal financial advisor. Please make sure to do your own research before moving forward with any actions discussed in this newsletter.
Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won’t experience any loss when investing. Past performance does not guarantee future performance. Always remember to make smart decisions and do your own research!
