All the news these days – interest rates keep rising.
Variable rate student loan borrowers and credit card borrowers will certainly feel this way. Prospective homebuyers who waited for historically low interest rates to save for down payments now face 7% interest rates on a 30-year fixed-rate mortgage as of September 2022.
With the economy teetering on the brink of recession (or already, depending on who you talk to), that’s not good news.
However, when it comes to raising interest rates, things are not the same.
On the bright side, savers who use certain investment and savings products will see better-than-usual growth in their accounts.
4 ways you can take advantage of rising interest rates
Let’s take a look at how rising interest rates can positively affect people with these types of accounts.
1. High-yield savings accounts
A High Yield Savings Account (HYSA) is simply a savings account that offers higher interest rates than a regular savings account that offers an interest rate of 0.17%, according to the FDIC.
Some of the best HYSA on the market currently offering interest rates around 2% and above, which have jumped again in the past few weeks. These rates may continue to rise throughout the year.
Because of their higher profitability, HYSAs may have stricter guidelines, including initial deposits, minimum balances and monthly maintenance fees. However, there are many free HYSAs with no minimums.
However, if you can deal with these rules, a HYSA is a great opportunity to watch your savings grow.
2. Money market accounts
Unlike traditional savings accounts, money market account is a savings vehicle that also has check and debit card writing privileges. These accounts also usually limit the number of monthly transactions and transfers you can make.
They also have higher interest rates than traditional savings accounts, making them ideal for people who want quick access to savings that grow, if only slightly, each month.
Some of the highest interest rates in the money market in September 2022 range from 2% to 3%. Bank Basque currently offers an account with 2.75% APY or the opportunity to earn 1.2 American Airlines miles for every dollar you spend annually.
3. Certificates of deposit
Certificate of Deposit (CD) it is simply a savings instrument that earns interest over a period of time. The money remains untouched during this time period.
Because of their lack of liquidity, CDs typically have higher interest rates than standard savings accounts.
As of September 2022, the best CD interest rates hovered around 3%, with this account is from Capital One offering 3.25% on a five-year CD and zero minimum balance. A $5,000 deposit on this CD would yield a profit of $867 over five years.
4. I Bonds
Designed to protect against inflation, I Bonds have become popular in 2022 thanks to historically high interest rates.
These instruments, also known as Series I savings bonds, use a fixed interest rate and the rate of inflation to create the bond’s compound rate. The fixed rate does not change throughout the life of the bond, and the inflation rate changes in May and November.
I bond now offering a combined rate of 9.62% to October 2022. This is an unprecedented figure that could rise or, less likely, decline after October.
You’ll lose some of the interest if you cash the bond before five years, and you’re required to hold it for at least one year.
Robert Bruce is the senior author of The Penny Hoarder.