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What: Now is a good time to save time and invest strategically

The Federal Reserve raised interest rates again this week by 0.75%. The goal is to cool the economy and keep high inflation in check, but as Fed Chairman Jerome Powell said, repeated rate hikes would “cause some pain” to families and businesses in the short term.

Recently, those who are considering purchasing a home or borrowing business funds must be keenly aware of the “pain”. Just this month, mortgage rates jumped to 6% for the first time since 2008, an astronomical rise from his lows in the 2% range early in the pandemic.

And while inflation could eat up every extra dollar in your budget, there are some smart things you can do with your money right now to grow it while interest rates remain high.

Switch to a high-yield savings account

If you have money in a typical bank savings account (currently earning an average of 0.17%), don’t run to open a high-yield savings account. Many HYSAs now offer 2% or more. Please select an FDIC insurance account.

buy-eye bonds and short-term bonds

The “I” in Series I savings bonds stands for inflation. In other words, the rate these bonds offer is tied to the rate of inflation (which, as we all know, is currently very high). Currently, Series I bonds have an interest rate of 9.62%, and individuals can purchase up to $10,000 worth per year.

“If you have cash that you’re sure you won’t need for 12 months, consider buying Series I bonds,” says financial planner Natalie Taylor. “Rates reset semi-annually, but if inflation and interest rates remain high, Series I bonds will continue to pay very attractive rates.”

Brian Mattox, vice president and chief investment officer at Kendall Capital, adds that buying short-term bonds is lucrative for now. “The short-term (two-year) Treasury pays as much or more than a 10- or 30-year Treasury,” he says. Furthermore, “in an environment of rapidly rising interest rates, short-term debt securities can be reinvested after maturity for even higher interest rates.”

Avoid floating rate debt

If you have to make a big purchase right now, avoid using variable rate debt. For example, if you buy a house, try to get a fixed rate mortgage. If interest rates drop again, you can always refinance.

“The advantage of a fixed-rate mortgage is that the interest rate never changes, but with a variable-rate mortgage, the rate can go up if it keeps going up,” she says.

It’s also a good time to consider transferring your credit card balance, as monthly interest rates can change if the Federal Reserve (Fed) raises rates.

“If you have a high credit card balance, consider transferring the balance to a zero-rate balance transfer card that is temporarily locked at zero rate,” says financial planner Jovan Johnson.

Stick to a long-term investment plan

Thinking about money can be overwhelming, so if you don’t want to do anything right now, that’s fine. In fact, it’s the best thing you can do with investments, especially retirement savings.

“Stay true to your long-term investment plan,” Mattox says. “Don’t let Fed rate moves and subsequent stock market volatility scare you into making abrupt changes in large portfolio allocations.”

—Stephanie Hallett, senior editor at Personal Finance Insider

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