3 Money Moves Everyone Should Make Before Interest Rates Rise
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How long will today’s low-interest rate environment last? No one knows for sure, though we can glean some clues from recent comments out of the Federal Reserve about interest rates.
One thing’s for sure: the Fed won’t keep rates near zero forever. And there are a few things you’ll regret not doing before the inevitable raising begins.
When will interest rates rise?
Last month the Federal Reserve commented on increased inflation risks, forecasting inflation of 3.4%. This raised speculation that the Fed would soon boost interest rates and slash its aggressive bond-buying program, despite unanimously voting to keep rates near zero.
Officials indicated that rate hikes could come as soon as 2023, which doesn’t sound too pressing. But just three months prior, the Fed stated publicly that it expected “no increases until at least 2024.” So if you’re hoping for sustained low rates, the goalposts are moving in the wrong direction. In fact, many “dot plot” watchers expect multiple rate hikes in 2023.
What you can do now while interest rates are low
A handful of money moves that are available in a near-zero interest rate environment will likely go *poof* when rates rise. Here are some opportunities you should consider taking advantage of while you still can:
1. Take advantage of soaring home prices
Skyrocketing home prices typically signal a so-called Sellers Market—but today’s environment just as much an Owners Market. With rates this low, a homeowner doesn’t have to put their house on the market to benefit from vertical prices. Consider taking advantage of your inflating home equity by refinancing or taking some money out of your house at record-low rates.
2. Move your credit card debt
Banks are itching to lend again, throwing around credit card reward offers and incentives like candy. Look for zero-balance transfer offers to move your high-interest credit card debt to a place that will give you some breathing room.
Alternatively, many personal loan offers are hovering in the mid-single digits, with the average near 10.5%. That’s significantly lower than the typical variable credit card rate, which currently tops 15%. Consolidating your overwhelming credit card debt into a locked lower figure is never a bad idea, and the gap is wider than usual thanks to lower interest rates.
3. Get creative with your saving
Low-interest rate environments can be a nightmare for savers, as deposit rates typically correlate with the federal funds rate. Most savings accounts currently carry an interest rate under 0.1%, with the average a mere 0.06%. One-year certificates of deposit, currently averaging 0.5%, will get ethered by the aforementioned inflation target.
Savers can get creative with their extra cash in a variety of ways. First and foremost, using cash to pay down high-interest debt is rarely a bad move, as it “earns” (by way of not accumulating interest) at the account’s interest rate. Other options include automatically converting your savings into investments with an app like Acorns, or earning a much higher interest rate on crypto holdings through BlockFi. The latter two options come with the obvious risks and volatility of investing, and may not be suitable for short-term savings or an emergency fund.
More smart money moves
With other costs on the rise, the moves above are great ways to generate cash or lower costs to counter those boosted expenses. Here are a few systematic strategies to consider while you’re open to making money moves:
- Use “unexpected money” to pay down debt
- Make money by boosting your credit score
- Don’t go to the grocery store hungry (seriously)
- Use the simple 50-30-20 rule
- Put science to work
And whatever you do, don’t just “save what’s leftover”!