Many of us believe that no single issue has recently interrupted the financial markets more than rapidly rising interest rates! In the past 13 months, the Federal Reserve has raised rates a staggering nine times, totaling almost 5% in cumulative increases. This has created turmoil for both bonds & stocks, as well as both challenges and opportunities in lending & saving. Today’s blog post will focus on the lending & saving component.
First, we will briefly look at lending. Rising interest rates are not the friend of one who needs to borrow money. Common consumer lending, such as a home mortgage, or a car loan, has become quite a bit more expensive. Prior to interest rates rising, you could have locked-in a 30-year fixed mortgage for 3% interest, or less! Today, that same mortgage carries an interest rate of 6.5 to 7.0%.
The real advantage of rising interest rates has been in the realm of savings! Finally, after years of incredibly low (almost non-existent) yields on your savings and money market accounts, attractive interest rates are now available. Simply put, this means that your cash reserves, and/or money set aside to fund a specific project or purchase, should now be a productive asset. We monitor this area of the financial markets, and based on what is currently available, you should be earning 3.75 to 5% on these assets.
The challenge is making sure that your cash reserves are truly earning productive yields, the interest rates you should be earning. The following list will be a guide to some of the possibilities that are available to you.
- Unfortunately, most of the local banks have been slow to increase their interest rates paid on deposit accounts. You will need to “shop around” as there are a few banks that have chosen to pay competitive yields.
- The online banks have exploded in popularity. Their yields have risen quickly and are quite competitive! These bank deposits are protected by the same FDIC insurance and are typically just as “safe” as the local banks. We do suggest that you choose a well-established, well-capitalized on-line bank if choosing this option.
- Money Market funds offered through investment companies have become an extremely attractive option, as they are currently yielding around 4.5%. In some cases, this type of money market account can simply be held inside one of your existing investment accounts as a line item. While they may not offer check writing privileges, money can quickly transfer electronically into your checking account in 1-2 days.
Our primary goal in supplying this information is to help you get the yields you should be receiving on your cash reserves and short-term project monies. Let us help you make these assets productive again! We will be happy to discuss the options with you and help determine which option could work the best for you. We count it a privilege to serve you in this way.