Rising Interest Rates: Smart Money Moves Now - First Union Lending (2024)

It’s probably not news to many that interest rates are on the rise. In early May, the Federal Reserve raised the short-term interest rate by half a percent. This was a huge move and the biggest hike seen in over two decades. The move came as a result of rapidly rising inflation. Increasing the interest rate, according to many financial experts, is one way to help try and control inflation. By the same token, however, it can be a precarious strategy and lead to a potential recession. So what do consumers do? What do you do to help safeguard your money during this tumultuous economic time? Keep reading to find out what smart money moves experts suggest you make now in light of rising interest rates.

Less Debt, More Savings

One thing that rising interest rates are likely to do is increase how much it costs to borrow money. Let’s say you have credit card debt for example, and that comes with high variable interest rates—you are going to pay more for using that card. If you currently have a lot of debit or credit cards with high balances, it makes sense to start trying to pay those off now. The less debt that you have, the less interest you pay, and the more money you can then divert to your savings. And having higher savings right now is going to be important, especially if rising interest rates and continued rate hikes lead to a recession.

Keep An Eye on Mortgage Rates

As interest rates rise, so do mortgage rates. If you are thinking about purchasing a home, and you have the ability to do so now, then you might want to go ahead and lock in a rate. Rates will only continue to rise according to many experts over the next year or so. Of course, you don’t want to rush into the purchase of a home, but closely consider your timeline and keep an eye on what mortgage rates are effectively doing.

Shop Around When it Comes to Your Bank

What sort of interest are you currently getting for your savings accounts? Every little dollar matters. Bigger banks are less inclined to offer attractive interest rates for savings accounts. However, smaller banks and online banks are now offering better rates in an effort to attract more clients. Shopping around your bank and seeing what is out there could lead to a better rate of return even on a savings account.

Consider Real Estate Investments

Stocks can be volatile. Historically speaking, real estate investments haven’t necessarily been hurt by rising interest rates. Real estate Investment Trusts (REITs) for example could be a great way to go as they have favorable growth potential and offer passive income. Especially with rents rising so quickly, if you are able to invest in a real estate trust, you could definitely reap the rewards.

What Not to Do with Rising Interest Rates

So what are some money moves that you should avoid during periods of rising interest rates? Many consumers make the mistake of thinking that interest rate hikes don’t necessarily affect them. This could not be further from the truth. Some things that you might avoid given the current financial climate:

• Don’t neglect the fine print. This means that when you sign up for any sort of loan, credit card, or subscription service, you name it, you want to read all the details and understand exactly what you will be paying. Being mindful of fees and charges reduces your returns. This means less cash in your pocket or bank account. And at a time like this, that can certainly hurt.
• Don’t ignore the diversification of your portfolio. Even in a tumultuous economic climate, you want to maintain a long-term view. If you are currently invested in short-term bonds, for example, consider adding longer-term bonds or intermediate bonds. This helps reduce overall volatility. Spreading out your investments in a variety of companies and industries will help you more effectively navigate interest rate hikes.
• Don’t be quick to eliminate all debt. There is good debt and there is bad debt. Reducing the amount you owe on credit cards is a smart move right now. Whereas, trying to quickly pay off a low-interest loan might not be to your best advantage at the moment. Understand the difference between good debt and bad debt and plan accordingly.
• Don’t hesitate to talk to your creditors. If you are struggling, especially in light of rising interest rates, then it is perfectly okay to reach out to our creditors. You might be able to get a new APR. Credit card companies are often willing to work with people during difficult times. Definitely keep this in mind moving forward.

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