These days, the news is filled with reports of rising interest rates. Borrowers with variable rates on student loans and credit card debt will be impacted. Additionally, those who delayed homebuying to save for a down payment during times of historically low-interest rates will now face higher rates of up to 7% on a 30-year fixed-rate mortgage as of September 2022.
The news isn’t good because the economy is either on the verge of a recession or already in one, depending on who you ask. However, there is some good news regarding rising interest rates. Savers can benefit from certain investment and savings products, resulting in more growth than usual in their accounts.
It would be beneficial to examine how an increase in interest rates could impact individuals with these accounts.
1. High-Yield Savings Accounts
According to the FDIC, a high-yield savings account (HYSA) is a type of savings account that provides a higher interest rate than a standard savings account, which usually yields a 0.17% interest rate.
Recently, some of the highest-yielding savings accounts (HYSAs) offer interest rates of 2% or more, which have increased in the past few weeks. It’s possible that these rates may continue to rise throughout the year.
High Yield Savings Accounts (HYSAs) offer a higher return but have stricter guidelines, such as an opening deposit, minimum balance, and monthly maintenance fees. However, there are several free HYSAs available with no minimum balance requirement. If you comply with these guidelines, an HYSA provides an excellent chance to witness your savings grow.
2. Money Market Accounts
A money market account is a type of savings account that allows you to write checks and use a debit card. However, these accounts usually have restrictions on the number of transactions and transfers you can make per month. This distinguishes them from traditional savings accounts.
High-yield savings accounts have higher interest rates compared to traditional savings accounts. This makes them an excellent option for those who want easy access to their savings, which also grows monthly, albeit slightly.
As of September 2022, certain money market account rates are as high as 2% to 3%. Bask Bank has an account option that offers a 2.75% APY or the possibility to earn 1.2 American Airlines miles for every dollar spent per year.
3. Certificates of Deposit
A certificate of deposit (CD) is a type of savings account that earns interest over a fixed period, and the money cannot be accessed during that time. CDs usually offer higher interest rates than regular savings accounts due to their lack of liquidity.
As of September 2022, if you are looking for the best interest rates on CDs, you can consider opening a five-year CD account with Capital One. They are currently offering a rate of 3.25% with no minimum balance requirement. If you deposit $5,000 into this CD, you can expect to earn a return of $867 over the next five years.
4. I Bonds
In 2022, I Bonds gained popularity due to their ability to safeguard against inflation, especially with the current high-interest rates. These bonds, also called Series I Savings Bonds, determine their composite rate by combining a fixed rate and an inflation rate. While the fixed rate remains constant throughout the bond’s lifespan, the inflation rate is updated twice a year, in May and November.
Currently, I Bonds have an exceptional composite rate of 9.62% which will remain in effect until October 2022. However, if you cash in the bond before five years, you will lose some interest, and it is mandatory to hold the bond for at least one year. Additionally, there is a possibility that the rate may either increase or decrease after October.