Rising interest rates offer better returns for savers
HOUSTON - With the Federal Reserve expected to continue aggressive interest rate hikes to fight inflation, higher borrowing costs also mean a 'silver-lining' for some dedicated consumers. We're talking about savers. There aren't a lot who can, or do save.
Economic data shows personal saving has been trending down for the last 18 months and sits at about 5%. Rising interest rates could make it a more attractive idea.
RELATED: Here's how much interest rate hikes will cost you
As Houstonians strolled through a recent warm afternoon, some shared how they sock money away.
"It's really not hard for me," says Ellis Jenkins. "You just gotta' put it away, and don't touch it."
Rather than hiding her cash in a mattress, Karen Galloway has her own system, "If you take an envelope and you put a buck in that envelope, every day, you'd be amazed how much money you could save." It's as good an idea as any other.
For years, with interest rates near zero percent, potentially risky investments seemed the only way to see savings grow. Now, with the Fed trying to control inflation by raising rates, there's a benefit for saving.
Treasury notes, for example, are all paying handsomely. In the last year, the 2-year government note has grown from a 0.26% payback to almost 4%.
Houston financial advisor Rich Rosso says, in addition to safe investment vehicles like government bonds, options for day-to-day savings are growing as well.
"If I'm a saver and I don't want to take the risk of gyrations in the market, I have a lot of choices right now that I didn't have for over a decade."
That's particularly true in the increasing number of online banks that are eager for customers.
Rising rates have allowed them to offer returns that often beat what brick-and-mortar institutions can provide.
"These online banks have high-level encryption, and they're FDIC insured, so why not look at them for the majority of your savings," says Rosso.
Typically, legacy brick-and-mortar banks are flush with cash and trying to get people to 'borrow' money, instead of 'save' it with them, so their interest rates are often lower.
If you want to look at an online bank, NerdWallet.com has done some decent homework comparing and contrasting. You can also ask family and friends, particularly younger adults who might already have some experience doing business with these institutions.