While the US economy is still operating in a fairly low rate environment, that won’t last long. The central bank is expected to raise interest rates several times in the coming months, although it is unclear how much.
“Inflation is the main focus of the wheel and will determine how much and how often the Fed will need to raise interest rates,” said Greg McBride, chief financial analyst at Bankrate.com.
Credit Cards: Minimize the Sting
When the federal funds rate – also known as the overnight bank lending rate – rises, You will pay the different lending rates that banks offer to their customers. So you can expect a spike in your credit card rates within a few statements, McBride said.
If you carry balances on your credit cards—which usually have high variable interest rates—consider converting them to a zero interest rate balance transfer card that is secured at a zero rate for 12 to 21 months.
“This insulates you from higher interest rates for the next year and a half, and gives you a clear path to paying off your debt once and for all,” McBride said. “Low debt and more savings will enable you to better offset increased interest rates, and be especially valuable if the economy deteriorates.”
If you don’t switch to a zero-interest credit card, another option may be to take out a personal loan with a relatively low fixed interest rate.
In any case, the best advice is to make every effort to pay off your balances quickly.
Home Loans: Fix Fixed Interest Rates Now
“Mortgage rates have jumped a full two percentage points since the beginning of the year, from 3.27% to 5.28%,” McBride noted.
However, “Don’t jump into a big purchase that doesn’t suit you just because the interest rates may go away above. Lacey Rogers, a Texas-based certified financial planner, said rushing to buy an expensive item like a home or a car that doesn’t fit within your budget is a recipe for trouble, no matter what interest rates will do in the future.
If you already have a variable home equity line of credit, and you used a portion of it to do a home improvement project, McBride recommends asking your lender if they’d be willing to fix the rate on your outstanding balance, creating an effectively flat-rate home equity loan. Let’s say you have a $50,000 credit line but only used $20,000 to replenish, you’d ask that a flat rate be applied to the $20,000.
If that’s not possible, consider paying off that balance by getting a HELOC with another lender at a lower promotional rate, McBride suggested.
Bank Savings: Shop
McBride said that if you’re hoarding cash at big banks that pay almost nothing in interest to savings accounts, don’t expect that to change just because the Fed is raising interest rates. That’s because the big banks are swimming in deposits and you don’t have to worry about attracting new customers.
But online banks, looking to maintain checking accounts and attract more business, are offering much better rates and are actively increasing them as benchmark rates rise. So it is worth shopping.
Stocks: Consider the power of pricing
Financial services companies, such as banks, usually do well in higher rate environments because, among other things, they make more money on loans. Insurance companies can partially thrive, too Because the returns on the securities they keep in their portfolios go up.
UsuallyAnd Real estate can be harmed by rising prices. But since the 10-year Treasury yield, which drives mortgage rates, has risen strongly in the past year, it may not jump as sharply where it was, Stritch said.
Tech companies also don’t benefit from higher rates. Certified financial planner Doug Flynn, co-founder of Flynn Zito Capital Management, said that given that cloud and software providers are releasing subscription prices to customers, that could rise with inflation.
To the extent that you already own the bonds, the prices of your bonds will fall in an environment of rising prices. But if you’re in the market to buy bonds, you’ll benefit from the trend, especially if it’s short-term bonds, as prices have fallen more than usual compared to long-term bonds. Usually, They move down in tandem.
“There is a very good chance of Short-term bonds that broke up badly.”
There are some limitations. You can only invest $10,000 in a year. You cannot redeem it in the first year. And if you spend between two and five years, you will lose the interest of the previous three months.
“In other words, iPonds are not a substitute for your savings account,” McBride said.
However, they hold the purchasing power of $10,000 if you don’t need to touch it for at least five years, which is nothing. It may also be of particular interest to people planning to retire in the next five to 10 years as it will be a safe annual investment that they can tap into if needed in the first few years of retirement.
Other assets that might do well are so-called floating rate instruments from companies that need to raise cash, Flynn said. The floating rate is linked to a short-term reference rate, such as the federal funds rate, so it will rise whenever the Fed raises interest rates.
But if you are not an expert in bonds, you are better off investing in a fund that specializes in making the most of a rising price environment through floating rate instruments and other bond income strategies. Flynn recommends looking for a strategic income or flexible mutual income investment fund or ETF, which will contain a range of different types of bonds.
“I don’t see a lot of these choices in my 401(k) seconds,” he said. But you can always ask your 401(k) provider to include the option in your employer’s plan.
“Infuriatingly humble analyst. Bacon maven. Proud food specialist. Certified reader. Avid writer. Zombie advocate. Incurable problem solver.”
Researchers have 3D printed a cheesecake
Asia Pacific markets rose after Wall Street saw gains amid optimism led by regional banks
Not everyone is happy with UBS’s purchase of Credit Suisse