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How to protect your money from Fed interest rate hikes

This week, the Federal Reserve increased interest rates by 0.25 percentage points, affecting everything from credit cards to auto loans and more, which will affect everyone’s finances. Here’s how to protect your money.

Federal Reserve raises interest rates

On March 22, 2023, in the Federal Reserve’s battle to tame stubborn inflation amid a 40-year high, the central bank increased the target federal funds rate by 0.25 percentage points, its ninth hike over a 12-month span, CNN reported.

Annual inflation in February was 6%, down from 9.1% last June, but still considerably above the Fed’s target of 2%, NPR reported. Meanwhile, consumer prices are continuing to increase rapidly, as well as costs for services.

Fed interest rate hikes 2022-2023

Three months into 2023 alone, the Federal Reserve has raised interest rates by 4.75 points. The increase puts the federal funds target range between 4.75-5%, CNBC reports.

Last year, the Federal Reserve increased interest rates in March 2022 by 25 percentage points, in the range of 0.25% to 0.50%. It marked the first rate hike since 2018, Rocket Mortgage reports.

In June 2022, the Fed raised the rate by an additional 75 basis points. The following month, the Fed raised the rate again by 0.75%. In September, the Fed hiked rates again another 75 percentage points to a range of 3% – 3.25%, expecting a target rate of 4.4% by the end of 2022.

How to protect your money from losing value amid Fed interest rate hikes

The latest Federal Reserve interest rate increase will affect everything from credit cards to auto loans, to student loans, to some types of home loans (ARM and HELOC), and more.

Invest your money in safe, interest-bearing accounts

Investments generally considered “safe,” such as US government Treasury notes, certificates of deposits, and some savings accounts, are a good way to offset rising interest rates, as well as the devaluation of your money through inflation.

Certificates of deposit and savings accounts

According to analysts, rates on certificates of deposit (CDs) and savings accounts are the best they have been in fifteen years.

Experts say you’re not likely to find the best savings rates at the biggest banks, though. Amid the current banking crisis, some people may be hesitant to put their savings into smaller regional or community banks or a local credit union. However, all you need to do to ensure you won’t lose your money is to make sure whatever savings account you place your money in is FDIC insured, which will guarantee that deposits up to $250,000 will be protected.

U.S. Treasury Series I savings bonds

Another safe and significant interest-bearing option is the US Treasury’s Series I savings bonds, which yield a 6.89% rate if you purchase before April 30.

However, there are some limitations: You can only purchase a maximum of $10,000 in digital bonds a year (or another $5000 in paper bonds). The bond can’t be redeemed in the first year. If you cash out between years 2-5, you will forfeit the interest gained for the previous three months.

If you can hold the bond for five years or longer, you can accrue significant interest on your money. Series I savings bonds are an excellent choice for people who plan to retire in the next 5-10 years, CNN reports.