How to Leverage Today's Ultra-High Interest Rates to Grow Your Savings
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High interest rates aren’t always a bad thing for everyday consumers. In fact, now could be the perfect time to leverage them to boost your savings.
The Federal Reserve’s inflation-busting rate hikes over the past year have created an opportunity for Americans to earn major annual percentage yields, or APYs, on their savings by creating what's called a deposit “ladder.” Laddering is a low-risk investment strategy that involves splitting money between certificates of deposit (abbreviated CDs) with different maturity rates to enjoy a steady stream of savings over time.
A CD is a federally insured savings product that holds a fixed amount of money for a set interval of time, usually ranging from three months to five years. As the CD gets closer to its end date, or matures, you earn guaranteed interest on your deposit.
Certified financial planner Joe Kelly tells Money that because of the inverted yield curve — which occurs when short-term interest rates for bonds are higher than what's expected in the long term — investors can now capture higher yields with shorter-term CDs without having to worry about where interest rates will go in the future.
You can then use the interest as cash, reinvest it in another CD to extend the ladder, put it into other investment or stash it in other savings accounts.
“It's quite an interesting time to invest and make a return that's greater than inflation so that our purchasing power is increasing,” Kelly says.
