In the last several years, interest rates have risen significantly after many years of record-low rates. For those with loans or mortgage debt, interest rate hikes have been challenging to deal with.
Higher interest rates essentially make borrowing money more expensive, and if you’ve got a mortgage or a loan, you may find yourself making higher payments, or having to extend the length of your repayment term.
But the good news is, high interest rates can also help you save more money – if you know how to use them to your advantage. Here’s what you need to know to boost your savings with today’s high interest rates. But first, a little background on interest rates and why they’re so high right now.
Why are interest rates higher than they used to be?
Interest rates are what your lender charges you to borrow money. When you pay back the loan, you have to pay both the original amount, plus a percentage of interest on that amount.
The interest rate that applies to your loan is an annual rate, which is often called an APR (annual percentage rate). In the U.S., the prime interest rate is set by the Federal Reserve, and lenders use it as the basis for their own rates. When inflation increases, like it did in the last several years, it causes prices and the cost of living to increase. The Federal Reserve tries to bring inflation down by raising interest rates.
When money costs more to borrow, this typically slows down spending. The lower demand then leads to lower prices, which brings inflation down. Once that happens, the Fed is able to bring interest rates down, too (though not likely as low as they were a few years ago).
Who feels the effects of high interest rates?
If you have a bit of money saved, then you’ll undoubtedly feel the effect of high interest rates. If you’re borrowing money, especially if it’s on a variable interest rate like a mortgage or a loan tied to a lender’s prime rate, you’ll be paying more for that money, because high interest rates mean a greater percentage of your repayments go to interest charges. This also means it’ll take you longer to pay back the loan.
Even if you aren’t borrowing money but just have some savings in the bank, you’ll be affected by higher interest rates – but in a good way! Some banks are offering accounts or other investment products with higher rates, so you can make more money on the savings you already have. Here’s how.
How you can benefit from high interest rates
Today, you’ll find many options for high-interest savings accounts, bonds and GICs that pay high interest rates. You may see these called high-yield savings accounts or high-return investments, but you probably won’t find them at one of the big banks!
While the larger financial institutions are paying an average rate of 0.59% interest on their savings accounts, true high interest accounts range from 2% to 5% – and those extra percentage points can make a huge difference in how much money you accumulate!
But if you’re thinking that this doesn’t apply to you because saving money is too hard when everything costs so much, well, we hear you. And that’s exactly why we’ve launched Fortuna.
We’re here to give you the kind of savings boost you may not get from big banks.
If you keep your money in a low interest savings account, it will actually LOSE value as time passes. That’s because, as prices go up, your money has less buying power – unless it’s going up too! In order for your money to keep up with rising costs, it has to increase at a higher rate than inflation (which is currently 3.4%). This is where a high interest account can pay off. The effects of compound interest over time add up to a lot more than you might think!
Compound Interest vs. Simple Interest
With Fortuna’s 3.00% APY high interest, a balance of $3,000 can accumulate almost $500
in compound interest over 5 years.
Introducing the Fortuna All-in-One high-interest account
Fortuna’s All-in-One account offers you 3.00% APY and is a great way to make more money with the money you have. What’s more, rewards are paid daily, so it’s an automatic cash builder. The longer you keep money in your Fortuna account, the more you’ll earn.
Change the way you think about interest – and make it work for you! We’re here to help you make it happen. Sign up today.
