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The Federal Reserve has pressed pause after hiking interest rates over the past few years. But while rates remain high for now, many experts predict the Fed will start cutting rates again later this year.
So what money moves should you make to stay ahead of the game? Here are seven ways to set yourself up for financial success while rates are still high — but likely not for long.
1. Lock in a certificate of deposit (CD)
Sometimes, putting your money into a basic savings account isn’t enough.
Certificates of deposit (CDs) are deposit accounts with fixed interest rates over a set period of time, from three months to five years. The upside with CDs is you lock in an interest rate for the entire term. But the downside is squirreling your money away in one often requires sacrificing liquidity.
Because rates are so high, you’ll often find the best yields on one- and two-year CDs. But you may want to consider locking in a longer-term CD now. Why? CD rates often mirror interest rates, so when interest rates fall, CD rates fall with them.
The best 5-year CDs offer up to 4.61% APY as of March 2024.
2. Open a high-yield savings account
A savings account is a smart financial move regardless of the interest rate environment. High-yield savings accounts have high interest rates that can help you meet your goals faster.
As interest rates climbed over the past few years, the rates on high-yield savings accounts soared. Many online banks offer well over 3% APY, and some pay as much as 5% or more.
These accounts offer easy access to your funds while helping you earn more interest than a traditional savings account.
But unlike CDs, high-yield savings rates are variable and can fluctuate. Saving yields will likely follow suit once the Fed starts slashing rates again. So, it’s a good idea to capitalize on today’s high returns to help you build an emergency fund or save for a vacation.
3. Pay down your credit card
When interest rates are high, it’s more expensive to borrow money. This is why credit card interest rates have increased in response to the Fed’s rate hikes. High-interest debt can accumulate and make it challenging to meet your financial goals.
Consider using this time to tackle your credit card debt, too. Focus on paying off the cards with the highest rate first while making the minimum payments on the others to avoid late fees.
You may want to consider a balance transfer credit card, which can help you save money on interest as long as you pay off your balance before the promotional period ends.
4. Delay big purchases
If you’re planning a major expenditure that requires financing — like buying a car, boat, or home — consider pressing pause. If the Fed cuts rates in the future, the borrowing costs for mortgages or other loans may also drop.
It often pays to wait until lower rates return rather than finance a big-ticket item when interest rates are still high.
Mortgage rates are expected to gradually decline in 2024, so waiting to lock in a mortgage may be smart. If you don’t want to wait, you could refinance once rates fall.
By waiting, you’re more likely to position yourself for better financial terms, which could save you money in the long run.
5. Buy an I Bond
Series I savings bonds are a special type of low-risk, government-backed security that pays interest tied to inflation. The bonds essentially provide built-in protection against rising prices.
You can purchase up to $10,000 worth of I-bonds each year digitally at TreasuryDirect.gov.
And with high interest rates, I bonds are paying 5.27% for the first six months on those issued between Nov. 1, 2023, and April 30, 2024.
Interest rates on I bonds are variable and adjust every six months. Remember that you can’t cash your I bond for the first 12 months. If you cash in the bond before five years, you’ll pay an early withdrawal penalty.
It’s a good idea to take advantage of today’s high I-bond inflation-adjusted yields while you still can. Plus, interest earned on I bonds is exempt from local and state taxes. You may even be able to defer federal taxes until you cash out the bond.
6. Review your investments
You may also want to review your overall investment portfolio. Ask yourself: Has inflation caused my assets to drift from their target allocation? How have higher interest rates impacted my portfolio and borrowing? Should I allocate certain assets in my portfolio, from mostly stocks to bonds, or vice versa?
Your investments should align with your long-term financial goals. Consider diversifying your portfolio to lower risk and take advantage of opportunities in different sectors. Consider consulting a financial advisor for advice tailored to your unique goals and risk tolerance.
As always, each investor’s portfolio will vary based on risk tolerance and time horizon.
The bottom line
Interest rate cuts are likely headed in investors’ direction in 2024. There are a few things you can do right now to prepare. From locking in a CD to reviewing your investments, it can be beneficial to explore your options and think long-term.
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