3 ways I'm taking advantage of sky-high interest rates before 2022 ends

3 ways I’m taking advantage of sky-high interest rates before 2022 ends

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  • To bring inflation down, the Fed raised interest rates several times in 2022.
  • It is therefore expensive to borrow money, but now is a good time to look for a new savings account.
  • I am also considering buying bonds for the first time and investing in cash-rich companies.

Two financial conversations have dominated American life in 2022: repeated Fed interest rate hikes and painfully high inflation. On November 2, the Federal Reserve raised interest rates for the sixth time this year, in an effort to curb inflation.

When interest rates rise, it can become more expensive to pay down debt, borrow money or get a mortgage. And while some people I know are waiting to make big purchases or buy a house until things calm down, I’m eager to capitalize on those higher than usual interest rates that may enjoy this year.

Here are the ways I plan to take advantage of high interest rates before the end of 2022.

1. Buy the best savings account

Over the past few months, as interest rates have risen, some banks have started raising interest rates on high yield savings accounts.

Since my financial portfolio is very cash rich, making sure my money is in a savings account with the highest interest rate can help me generate thousands of dollars in passive income per year.

That’s why I always look for the best rates offered by banks. To date, my current bank has an interest rate of 2.5%. Other banks currently offer more, such as CIT Bank Savings Connect (3.25%) and UFB Elite Savings (3.16%).

While these interest rates could change at any time, I plan to monitor rates over the next few weeks and then decide if it’s worth moving my money. If I can get 1% more elsewhere, that could be a difference of a few thousand dollars a year.

2. Invest in bonds

Many of my investments are currently in stocks. However, I can’t wait to change that, because when interest rates go up, the stock market starts to go down. This is because companies will borrow less money when rates are high and the result is that their profits will grow at a slower rate than expected.

An investment that I am considering, for the first time, are bonds. Bonds are fixed income securities where an investor lends money to a company, or the government, for a set period of time. When interest rates rise, bond prices tend to fall, while offering a higher yield.

For example, the 10-year Treasury note is currently yielding a rate of 4%, compared to 1.52% last year.

Another bond I am looking to invest in is the US Treasury I bond. Their annual interest rate is currently 6.89%, down from a record high of 9.62% earlier this year. Although this is an effective and low-risk way to grow money, you are only allowed to buy $10,000 of I bonds each year.

Adding more bonds to my investment portfolio, especially when interest rates are high and my stock market cash is taking a hit, could be a way to diversify my investments and even increase my net worth.

3. Invest in cash-rich businesses

Over the past few years, I’ve wanted to get smarter about the individual companies I invest in and, by the end of the year, buy shares in one or two companies that I think will generate a return decent over the next decade. .

One type of business to invest in when interest rates rise are cash-rich businesses. This is because they earn more from their cash reserves and don’t have to deplete their finances by paying high interest rates to borrow money.

When researching these types of businesses, it is good to look for those with a low debt-to-equity ratio, as they are less likely to go bankrupt or default during a recession or economic downturn, and businesses who have excess cash, which you can find when you check their quarterly reports or balance sheets.

Alphabet and Berkshire Hathaway are two companies I’m considering investing in. Both have a considerable amount of cash and other low-risk securities, investments and assets. Based on my research, these two companies seem like good bets to invest money in, even if interest rates continue to rise.

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