How Rising Interest Rates Can Be a Boon to Your Savings
Rising interest rates often prompt people to re-examine their investment portfolios and asset allocation. After an extended period of a near-zero rate environment that steered many people toward alternative income strategies, the recent rise in interest rates may be a good time to take a closer look at your savings strategies. As interest rates go up, the more cash you have in savings vehicles, the more you stand to benefit from more generous terms from banks. Higher interest rates on savings accounts, money market accounts, and certificates of deposit (CDs), mean more money that can be earned for every dollar invested.
“As interest rates increase, shifting some of your investment funds into CDs and other fixed rate investments can be prudent,” said PlainsCapital Bank Wealth Management Chief Investment Officer Rich Wyatt. “CDs are part of many well-rounded financial portfolios, and their appeal for savers and investors alike is the guaranteed, fixed-interest yield they provide coupled with the protection of being FDIC insured,” said Wyatt.
Long considered a safe product for helping people build their financial nest eggs, CDs are also a great tool for investing earmarked money for future use—like a home renovation, college tuition, or a dream vacation.
In a rising-rate environment, like the one we are currently experiencing, yields on CDs go up, making them even more appealing. Wondering if you should allocate more of your funds to CDs? Wyatt says the answer depends on your financial objectives, time horizon, and risk tolerance. That said, if you’re looking to make the most of rising interest rates, here are some strategies to maximize the earnings potential of your CD investment.
Favor shorter-term CDs
With rising interest rates, Wyatt recommends choosing shorter-term CD vehicles (two years or less), “That way, if rates continue to increase, you can take advantage of the higher earnings by reinvesting the funds when the CD matures.” Another option to consider is CD laddering, where you divide your money across CDs with varying maturities, so that all of your money isn’t locked in at the same rate for the same number of years at a time. And because of the currently competitive rates being offered—and the relatively flat yield curve—there isn’t much difference in the yields between short-term and long-term (three to five years) products. So if you’re setting up a ladder now, favor shorter-term CDs, that way you can reinvest if rates continue to rise.
Consider step-up CDs
Also called rising-rate CDs, step-up CDs come with a provision that enables an investor to exchange the initial yield for a better one as interest rates increase. This is different from a traditional laddered strategy, as step-ups provide the ability for better long-term return with the same CD.
Take advantage of special rate offers
Be on the lookout for limited-time CD rate promotions. These promotions allow you to earn even higher interest rates than banks’ normal CD rates. PlainsCapital Bank is currently offering a summer CD promotion for short-term, 13-month CDs at 2.02% APY.
2018 Summer CD Rate Promotion
13-Month CD Special
$1,000 Minimum Balance
No Maximum Balance
Rates as of June 1, 2018. Some requirements and restrictions apply. Limited-time offer.
Changes in the federal funds rate—up or down—have savings and investment implications for everyone. Whether you’re 25 or 65, it’s always a good idea to keep an eye on anything impacting your savings. Wyatt advises, “You should think of CDs in a relative, rather than an absolute way. Don’t make decisions about a CD or any other single part of your financial portfolio without weighing its place in your bigger financial picture.”
To learn more about savings and investment strategies best suited for your financial needs and goals and to find out more about our CD rates, visit the PlainsCapital Bank website. For additional information or to open an account, visit any PlainsCapital Bank branch location or speak with a customer service representative at 866-762-8392. At PlainsCapital Bank, we have the tools and resources to help your money go farther!
*Annual Percentage Yield of 2.02% is current as of June 1, 2018. Interest rate is 2.00% for 13 months. Interest is capitalized and paid quarterly. CD renews automatically. Penalty for early withdrawal. Fees could reduce earnings. FDIC insurance limited to $250,000 in most cases. Find more information here.