In a world with 6% mortgage rates, savers are the winners – Orange County Register

Risk-averse people, this is your moment in the spotlight.

For about a decade, the same forces that drove mortgage rates to record lows kept risk-free savings yielding next to nothing. But now the Federal Reserve has replaced its easy money policy with sharp interest rate hikes.

So it’s a world of 6% mortgage rates – and 4% Treasury yields. That means it’s time to hone your hunting skills for higher savings rates.

Yes, nobody gets rich with today’s risk-free returns. But the effort can be worth it for any excess money you have in government-backed assets.

Rate shopping means you will likely need to open accounts with new banks or other financial institutions. And you need to be comfortable with remote banking to maximize those returns. If you’re a fan of branch banks, there are some ways to boost returns at local institutions too.

Why is the Federal Reserve ruining the US economy with rate hikes?

Some online investigative skills are required. Sites like Bankrate, NerdWallet, or WalletHub track better-paying accounts nationally and locally. But I would note that certain savings-friendly institutions will place ads in your favorite local newspaper for accounts with attractive interest rates.

You must also become a careful reader of the fine print. The extra income from your efforts can be significantly trimmed by a variety of fees – fees for everything from not meeting a minimum balance to moving too much money.

But the first step is to split your remaining cash into two piles: what you might need in the short-term and the emergency fund that can stay parked for a while. Let’s explain why.

money markets

If you have spare cash that needs to be easily accessible, bank money market accounts may be the best choice for you.

They’re an upgrade from interest-paying checking accounts or traditional savings accounts that often pay close to zero. The downside is that money markets usually come with restrictions on how often you can withdraw the money.

In return, some banks will pay you a decent interest rate. Bankrate says annual returns average 2% nationwide.

Note: If you need to access this money more than once or twice a month, frequent activity fees can eat away at your returns.

savings bonds

If you don’t need extra cash for the next five years, the federal government borrows money through a weird consumer-facing investment that currently pays a 9.6% annual rate.

This is the inflationary version of the venerable US savings bonds – the so-called “I” bond. Why so high? Well, its rate is derived from the latest inflation figures.

Of course, there are a few catches with “I” bonds, which are sold through a US Treasury Department website called treasurydirect.gov.

The tariff is variable. From November, new inflation data will determine the return for the next six months. (It’s a good bet the payout won’t be much lower for the next few years, but inflation should come down over time!)

In addition, if you want your money back within five years, you will lose the interest of the last three months, although this may prove to be a small penalty.

You can only buy $10,000 per year, but there is a congressional push to increase that limit.

government bonds

One trick your investment advisor is unlikely to tell you is that the same government website – treasurydirect.gov – also allows you to buy other Treasury-backed investments.

It’s not the friendliest investment site. And you need to understand a little bit about how government bonds are sold.

But it offers maturities from three months to 30 years with yields at or around 4%. No fees are charged. The site will even automatically reinvest your savings as your security matures, if you so choose.

deposit receipt

In return, the bank will often pay you a better interest rate if you commit to holding the money in place for a longer period of time.

Keep in mind that there are often – sometimes hefty – penalties for early withdrawals, so planning is required.

CDs come in almost every stage of maturity imaginable, so make sure you’re comparing apples to apples when buying in installments. The best rates in recent times have ranged from almost 2% for three-month CDs to just over 4% for three years and more.

And note that some banks offer “Penalty-Free CDs” where the yield is slightly lower but you can always withdraw for free.

Brokered CDs

You do not need to obtain a deposit receipt directly from the issuing bank.

Numerous institutes with federal insurance also sell their CDs on bond markets. This is roughly how stocks are traded, hence the name “brokered”.

And oddly enough, and to your advantage, mediated CDs usually pay better than what can be found in branches or on the same bank’s website.

Your financial guru can probably help you find mediated CDs. Some do-it-yourself brokerage accounts also offer them.

by the way

https://www.ocregister.com/2022/09/30/in-a-world-of-6-mortgage-rates-savers-are-the-winners/ In a world with 6% mortgage rates, savers are the winners – Orange County Register

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