10 Things to Watch When Interest Rates Go Up - Part 2

Find out how rising interest rates affect bond prices, home mortgage rates and more.

The Federal Reserve increased interest rates seven times in 2022 and twice in 2023 (as of March 2023), by a total of 0.25%. As the Federal Reserve seeks to reduce inflation, which is at or near its highest levels since the 1980s, further price hikes may be on the horizon.

Refunds on Deposit Certificates If interest rates are expected to increase, rise CDs may be a good option for new investors due to their higher potential annual percentage yields.

However, when interest rates rise significantly, those who have money in a long-term CD earning a lower rate may want to withdraw some or all of their money before the maturity date (after factoring in any applicable penalties).

"For those who already have CDs who may be comparing their old CD rates to the newly increased CD rates, they may feel like they are missing out," says Simon Zhen, chief research analyst at MyBankTracker.com.

He suggests diversifying your CD holdings by "laddering," a strategy some people use so they are less tempted to switch CDs every time interest rates fluctuate.

Rates of Return on Savings Increase

When interest rates rise, banks often increase the interest rate on savings accounts. Due to stimulus payments made during the pandemic, "bank balance sheets and total deposits have blossomed to more than they know what to do," Zhen says.

He says that while the Fed's interest rates may be rising, banks may not feel the same pressure to raise savings account rates in tandem with the Fed. By March of 2023, the average annual yield on a regular savings account was 0.35%.

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