How To Make Your Money Work for You When Bank Interest Rates Are Low

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Investors and savers alike are at a bit of a crossroads when it comes to earning a good return on their money. Although market interest rates have been ticking higher in 2022, the amount paid on bank accounts remains woefully low. Meanwhile, inflation is the highest it has been in decades, driving up the daily cost of living for consumers. In this type of environment, it can take some work to get the most for your money. Here are some options to consider in this difficult environment.

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Check Online Banks for High APYs and Promotions

Savers at traditional banks have earned essentially nothing on their deposits over the past few years. As of Jan. 18, the average savings rate at banks across the country was just 0.06%, meaning many banks paid even less than that. But if you’re willing to bank with an accredited online institution, which carries the same FDIC insurance as your brick-and-mortar bank on the corner, you can typically score yourself a much higher payday. For example, at Marcus by Goldman Sachs, you can get a no-fee savings account paying a % APY, as of 9/21/22, more than 8x the national average rate. Additionally, Marcus currently offers a $100 bonus if you deposit $10,000 in new money and keep it there for 90 days. Other online banks also frequently offer sign-up promotions, so shopping around can really pay off if you want to earn more than a 0.06% APY on your idle cash.

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Protect Yourself From Inflation With I-Bonds

Rather than worrying about the negative effects of inflation, why not protect yourself with an investment tailor-made for an inflationary environment? The U.S. Treasury’s I-bonds pay a fixed interest rate that also comes with a floating “kicker” rate that adjusts upwards and downwards every six months based on the current inflation rate. Since inflation is at multidecade highs, currently issued I-bonds pay a rate of 7.12% until April 2022. While this rate may dramatically adjust every half-year, if you believe that inflation will continue to run hot I-bonds may be a good place to stash some of your money.

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Diversify Your Holdings With Stocks

If you’ve got a longer-term time horizon with your money, stocks can be a great diversifying tool in a low-rate environment. Although high-multiple stocks have taken a hit in late 2021 and early 2022 on fears that inflation could increase their cost of borrowing, inflation can actually be a plus for many companies. Coca-Cola and McDonald’s, for example, have sterling brand names and extremely loyal customers. Most consumers aren’t going to stop drinking Coke or having a Big Mac even if the cost goes up by a few cents here and there, especially if competitors are raising prices as well. This can make investing in these types of companies a solid bet, even in an inflationary environment. Risk-tolerant investors with a long-term outlook can take a look at the high-flying companies who have already taken their lumps over inflationary fears, as some of that selling is likely overdone.

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Invest In Real Estate

Real estate is one of the investments that often performs well in an inflationary environment as the costs to build and maintain a home rise — along with rents for tenants — housing prices themselves tend to go up as well. Even though mortgage rates have been rising, they remain very low on a historic basis, and supply is extremely limited even as demand for houses continues to rise. The combination of all of these factors should continue to drive up housing prices over the near term, making real estate a potential moneymaker in a low-rate banking environment. 

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Be Patient

The new year is barely underway, but there are already huge changes afoot in the macroeconomic environment. Many stocks have already sold off 10%, 20% or even 50% or more from their highs, perhaps offering long-term opportunity for those willing to do their homework. Meanwhile, the Fed has all but promised a series of rate hikes in 2022 and beyond, which will immediately raise the rates paid on bank accounts and give savers a long-awaited income boost. The bottom line is that savers and investors should keep an eye out for opportunities amid the struggle and take advantage of the shifting landscape in 2022.

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This article was updated on June 30, 2022 to reflect current savings rates.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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