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Interest rates have been rising over the last few months at a pace we haven't seen since the late '70s. Even for avid market watchers, this fact should cut through the noise and signal we're in a historic new era of high rates.
Understanding how we got here isn't just interesting — it's vital to helping you plan how (and where) to move your money to make sure it's shielded from the challenges of a high-rate environment while taking advantage of higher annual percentage yields. Here are two actions you can take immediately to make the most of this moment, along with an explanation of how we got here and where we may be going.
Move your savings to a high-yield account
Right now, the best high-yield savings accounts have interest rates above 5%. "Savings is now very valuable," says Elliot Eisenberg, chief economist at GraphsandLaughs, an economic consulting firm. "If you have savings don't leave it where it used to be, inside a checking account that pays you nothing ... make sure to get good returns on your savings."
UFB Direct has the UFB Secure Savings account (previously known as UFB Best Savings) which currently offers one of the highest APYs on the market and no monthly fees or minimum balances.
UFB Secure Savings
UFB Secure Savings is offered by Axos Bank ® , a Member FDIC.
Annual Percentage Yield (APY)
Up to 5.25%APY on any savings balance; add a UFB Freedom Checking and meet checking account qualifications to get an additional up to0.20%APY on savings
Minimum balance
$0, no minimum deposit or balance needed for savings
Fees
No monthly maintenance or service fees
Overdraft fee
Overdraft fees may be charged, according to the terms; overdraft protection available
ATM access
Free ATM card with unlimited withdrawals
Maximum transactions
6 per month; terms apply
Terms apply.
Read our UFB Secure Savings review.
With a Varo Savings Account, you can earn a tiered return based on your balance and whether you receive direct deposits.
Varo Savings Account
Bank Account Services are provided by Varo Bank, N.A., Member FDIC.
Annual Percentage Yield (APY)
Begin earning 3.00% APY and qualify to earn 5.00% APY if meet requirements
Minimum balance
$0.01 to earn interest
Monthly fee
None
Maximum transactions
Up to 6 free withdrawals or transfers per statement cycle
Excessive transactions fee
None
Overdraft fee
None
Offer checking account?
Yes
Offer ATM card?
Yes, if have a Varo Bank Account
Terms apply.
Pay down high-interest debt
The flip side of higher savings account rates is that debt is also more expensive.
As credit card APRs exceed 20%, you may be able to save more by prioritizing paying down high-interest debt. It could also make sense to "borrow other money to pay off more expensive money," Eisenberg says. However, any money you borrow comes with a cost that is only increasing along with interest rates.
A debt consolidation loan can help you bundle together various debts into one, simplified obligation that (hopefully) charges you less in interest than what you were paying on multiple debts. Just make sure the upfront fees for your consolidation loan don't offset any potential savings.
Balance transfer credit cards allow you to transfer debt from multiple cards to a single card with a 0% APR period, which can also be a helpful way of managing expensive debt. If you go this route, make sure you can pay off the debt before and of the 0% APR period, since you'll be on the hook for interest payments after that expires.
How to think about today's high rates
The main reason rates increase is because of inflation.
In 2022, the Consumer Price Index crossed 9% for the first time in 40 years. In response, "the Fed started their rate-rising cycle with a vengeance because they were somewhat behind the times," says Eisenberg. "They fell behind the curve, inflation got out of control."
The reason rising rates can curb inflation is that it makes borrowing money more expensive and should limit spending. This led many economists to forecast a recession in 2023, though the economy remained resilient through the first half of the year.
How do today's rates compare to historical trends?
For anyone who became an adult during the 21st century, today's interest rates are the highest you've had to navigate. For example, mortgage rates crossed 7% in the fall of 2022, which was the first time we've seen mortgage rates that high in over 20 years.
There is no single entity that sets interest rates, however, the Federal Reserve's benchmark Federal Funds Rate has a large influence on rates in general. At the time of this writing, the target for the Federal Funds Rate is around 5.25 to 5.5%, the highest it's been in over 15 years. And the Fed has indicated that another rate hike is possible in September.
While today's rates are significantly higher than they were in 2020, they don't fall outside of historical norms. During the '70s and '80s, the Fed's benchmark rate topped double digits many times, and mortgage rates climbed into the teens.
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Bottom line
Today's rates are at levels we largely haven't had in two decades. That presents both opportunities and challenges.
For savers, or anyone wanting to save more, what you can earn from a high-yield savings account, money market account or CD has increased to over 5%. However, if you have high-interest debt or need to take on debt to buy a house or car, your big purchase has become significantly more expensive in the past year.
Read more
These top high-yield savings accounts could earn you over 15X more money than the national average
How do 0% APR credit cards work? 8 things to know before applying
Here's how much money you should be saving from every paycheck
Here's why the interest rate on your high-yield savings account goes up and down
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.