Higher interest rates are not always a bad thing. In fact, it could be argued that keeping rates closer to the long-term average provides more options and opportunities outside equity markets. As of February 22, 2023 the Federal Funds rate is 4.58% which seems really high. Actually, it is still just slightly below the long-term average of 4.60%. What is the upside? You can save and earn nearly 5% interest with minimal risk. Banks are currently offering Certificates of Deposit with one-year terms at 4.5% and higher. Credit unions are doing the same with their Share Certificates and typically offer a slightly higher rate for members. This is great for retirees with conservative portfolios looking for low risk yield. This is also a fantastic place to save for the down payment on a home or to make another large purchase in the next couple years. You may also be holding Series I bonds from when the interest rates were over 9%. The rumors are that those rates are going to drop quite a bit in May and you may look to redeploy cash savings. These products might be the right place.
In conclusion, we can’t control what the federal reserve does with interest rates. All we can do is roll with the punches and look for a silver lining. We believe CDs, Share Certificates and even money market accounts have come back around to being legitimate options for managing your cash savings.
