Personal Finance

What to do with money when the Fed raises interest rates

Insider’s experts choose the best products and services to help you make informed decisions with your money (here’s how). In some cases, we receive a commission from our partners, however, our opinions are our own. Terms apply to offers listed on this page.

Welcome to Personal Finance Insider, a bi-weekly newsletter that connects you with the stories, strategies and tips you need to better manage your money.

cropped image of hands using mobile phone looking at financial market app

Luis Alvarez/Getty Images

Here’s what: It’s a good time to save and invest strategically

The Federal Reserve raised interest rates again this week, by 0.75 percentage points. The goal is to cool the economy and bring high inflation under control, but repeated hikes will “bring pain” to families and businesses in the short term, as Fed Chairman Jerome Powell has said.

If you’ve recently bought a house or been looking to borrow money for your business, you’re no doubt well aware of this “pain”. Just this month, mortgage rates jumped as high as 6% for the first time since 2008, an astronomical increase from their early pandemic-era lows in the 2% range.

And while inflation is likely eating away at every extra dollar in your budget, there are smart things you can do with your money right now to help it grow while interest rates stay high.

Switch to a High Yield Savings Account

If you have savings in a typical bank savings account (currently earning an average of 0.17%), run, don’t walk, to open a high-yield savings account. Many HYSAs currently offer 2% or more. Be sure to choose an FDIC-insured account.

Buy I bonds and short-term bonds

The “I” in Series I Savings Bonds stands for inflation – meaning that the rate offered by these bonds is tied to the rate of inflation (which, as we all know, is currently very high). Currently, Series I bonds yield 9.62% and individuals can purchase up to $10,000 per year.

“If you have cash that you’re sure you won’t need for 12 months, consider buying Series I bonds,” says financial planner Natalie Taylor. “Rates reset every six months, but if inflation and interest rates continue to be high, Series I bonds will continue to pay very attractive interest.”

Brian Mattox, vice president and chief investment officer at Kendall Capital, adds that buying short-term bonds is lucrative right now. “Shorter-term (two-year) Treasuries pay as much as or more than 10-year or even 30-year Treasuries,” he says. Additionally, “short-term debt securities can be reinvested after maturity to earn even higher rates in a rapidly rising rate environment.”

Avoid variable rate debt

If you need to make a large purchase right now, try to avoid using variable rate debt to make it. For example, says Taylor, if you’re buying a house, try locking in a fixed-rate mortgage — you can always refinance later if rates drop again.

“The advantage of a fixed rate mortgage is that your interest rate will never change, but with a variable rate mortgage your interest rate may increase if interest rates continue to rise” , she says.

Now is also a good time to consider balance transfer offers on your credit cards, as your monthly interest rate may change as the Fed raises rates.

“If you have a high balance on your credit card, consider transferring the balance to a zero-rate balance transfer card that locks in a zero rate for a temporary period,” says financial planner Jovan Johnson.

Stick to your long-term investment plan

If you’d rather do nothing right now because thinking about money is so overwhelming, that’s fine. In fact, it’s the best thing you can do with your investments, especially your retirement savings.

“Stick to your long-term investment plan,” says Mattox. “Don’t let the Fed’s interest rate movements and subsequent stock market volatility scare you into reckless, large-scale portfolio allocation changes.”

— Stephanie Hallett, editor of Personal Finance Insider

Stories you may have missed

3 expenses to cut now to start saving and retire early, from the Netflix documentary “Get Smart With Money”

In a new Netflix doc, financial experts teach everyday people how to save, invest and retire early. “Get Smart With Money” has practical advice for everyone.

Everyone is trying to buy a rental property right now, but after 15 years as a landlord I’m selling my property for 4 reasons

Landlord Holly Johnson has made $150,000 on the sale of one of her rental properties. She also expects to make a profit on the second one.

How to buy treasury bonds, one of the safest ways to invest to generate income

Treasury bonds, or “treasury bills,” can be a smart buy in our current high interest rate environment. Here’s Insider’s guide to getting in.

As a financial planner I always say that you don’t have to buy real estate to build wealth – there is a better strategy that is much easier

According to financial planner Eric Roberge, many Americans believe owning real estate is key to building wealth — it’s part of the “American Dream,” after all. But this is not a requirement.

Do you like this newsletter and would like to recommend it to a friend? Here is a registration link.

Do you have any comments on this newsletter? We would like to hear it. Contact us at

Leave a Reply