Though rising interest rates come with ambiguous strains on the economy, there are ways to use those price hikes to your advantage. Whether it’s opening a high-interest savings account or transferring credit card balances, we’ve gathered three tips to help you navigate increasing interest rates.

Maximize Your Savings Account 

While inflation has made it hard to put aside money into an emergency savings fund, rising interest rates make it easier to ensure your cash earns as much interest as possible. Experts recommend having three to six months of living expenses in your emergency fund. Putting those funds into a high-interest savings account will provide additional cushion without subjecting them to risky investment decisions such as stocks or crypto.

According to the Federal Deposit Insurance Corporation (FDIC), the national average annual percentage yield (APY) is listed as 0.40 %. As a result, some banks are offering savings accounts that meet or exceed the national average.

Lock in Your Money at a Higher Rate

If you’re looking for even higher interest rates, a Time Deposit or certificate of deposit (CD), as they’re often called, might be an option. This is a type of savings account that earns interest on a lump sum for a fixed period of time, but those funds must remain untouched for their entire  term to earn the full amount of interest.

What are the advantages and disadvantages of opening a Time Deposit?

Advantages:

• If rates go down, APY is locked in.
• Wide range of terms (91 days, 182 days, 1 year, etc.) to fit your financial needs.
• No service charge if minimum balance is met.
• Typically backed by federally insured banks.

Disadvantages:

• If rates go up, you’re APY is locked in.
• Funds are also locked in for designated terms (91 days, 182 days, 1 year, etc.), therefore early withdrawals are subject to penalties.
• Higher minimum balance requirement.

According to this recent report from Investopedia, that’s among some of the most competitive 6-month rates. Like any CD, certain restrictions apply. For more information on FirstBank or to open a FirstBank Premier Time Deposit account, go to efirstbank.com. Member FDIC.

Minimize Your Credit Card Debt

According to CNN, when the Federal Funds Rate goes up, it drives up the various lending rates banks offer their customers. The Federal Open Markets Committee (FOMC) sets the Federal Funds Rate to guide overnight lending among U.S. banks.

Consequently, you may see an increase in your credit card rates. So, carrying high balances on lines of credit with high variable interest rates will affect how quickly you can pay down the debt. If you’re unable to make sizable payments to your credit cards, transferring debt to a zero-rate balance card is another option. Regardless of your plan, making a concerted effort to pay down credit card balances will help safeguard your funds from rising interest rates.

Test Out the Waters in Home Buying 

Rising interest rates also impact mortgage rates and the homebuying process. Bankrate.com reports the average contract interest rate for a 30-year-fixed-rate mortgage has increased to 7.17%. Though monthly loan payments and payoff costs may be higher due to increased rates, the demand for homes has decreased. As of May 19, 2023, mortgage applications fell 4.6%, following a 5.7% drop from the previous week according to a survey by the Mortgage Bankers Association.

In a historically competitive market, this decrease in buyers offers a silver lining for those who need housing regardless of interest rates. As always, seeking help from a knowledgeable mortgage lender or real estate professional can help ensure you make the right financial decisions.

Though interest rates seem to fluctuate more frequently than the weather, it’s good to get ahead of the storm and stay informed. To uncover additional financial tips, check out the Financial Health and Savings Tips page at efirstbankblog.com.

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