GREENSBORO, N.C. — "Cashing in" on high interest rates might sound like an oxymoron, at at time when economists are eyeing an uncertain economy with 30-year fixed mortgage rates at more than 7% as of early August.
International financial literacy speaker and founder of Debt Sucks University, Ja'Net Adams, emphasized time is money, and the time is now to make money on investments.
I Need More
"The last two years everyone has been talking about rising interest rates and how it is making items like mortgages and other loans more expensive. What people have not been talking about is the benefit that comes with rising interest rates, and that is the rise in rates on savings accounts, money markets, CDs, etc.," Adams said.
A Certificate of Deposit (CD) is a type of high-yield savings account offered by banks and credit unions. It entails a fixed term, typically six months to a year, in which the depositor can't withdraw money without a penalty. This week, bank tracker Nerd Wallet showed several banks with CD rates in the 5% range.
A money market can have similar high interest rates and does not involve a term, though it typically does require a higher minimum deposit than a regular savings account.
Don't Skip Steps
While the rates are enticing, Adams urged caution in considering when to move the money.
"Many people want to see how they can grow their money but forget about a crucial first step," she said.
That first step is having an emergency fund -- a 'rainy day' account -- already established.
"You don't need to worry about a money market or a CD until you have at least $1,500 saved for emergencies. This is money that you can easily get access to in case something happens. If you can't save $1,500 start with $500, and once you get to the $1,500 then start looking at other saving options that can grow your money," she suggested.
Leave It Alone
Investors, she said, almost have to have an 'out of sight, out of mind' perspective with CDs.
"An important question you have to ask yourself before putting your money in an account like a money market or CD is, 'Can I afford not to have access to this money?'"
She said CD terms can range from three months to five years, and investors who take out the money before the end of that term will pay a penalty.
"Money markets don't have a penalty, but the institution could limit the number of withdrawals you can do. The goal is to leave the money in the savings vehicle for a longer time, so that you can get the highest rate available," she said.
Is There A Difference?
Adams said the risk can be worth the reward for investors in a position to diversify their savings.
"Regular savings accounts can start at .35%, while there are some CDs and Money Market Accounts that reach over 5%. It is extremely important to do your research and see what the best option is for you. Remember, it is not just about the interest rate, but it is also the timeframe of the account. All in all, make sure your money is making money!" she emphasized.
Do you have a money question for Ja'Net? Check out her resources at Debt Sucks University.