Is the stock market too risky for your appetite right now? Are you looking for a safe, easy and no-hassle way to grow your savings that doesn’t require a lot of research? Then look no further!
With rising interest rates and stubbornly high inflation, some out-of-fashion wealth building methods are now the new, trendy thing to invest in!
Two of the safest and easiest ways you can increase your savings today are to:
- Move your money from a bank account into a high interest savings or money market account; or
- Invest in government backed I bonds or TIPS.
Savings and Money Market Accounts
Savings and money market accounts are now offering interest rates over 4.00%. The last time we saw interest rates this high was before the Great Recession in 2008!
So, why are interest rates increasing?
Well… Interest rates are mostly impacted by the Federal Reserve’s monetary policy, and to fight rising inflation, the Fed has increased the interest rate to slow down the growth of the economy.
Increasing the interest rate slows down growth because it makes it more expensive for businesses and consumers to borrow money.
BUT… that also means that banks are incentivized to pay you more to deposit money with them since they can then turn around and loan it out for high rates.
I Bonds and TIPS
Government backed I bonds and Treasury Inflation Protected Securities (TIPS) are another great way to save money in today’s market. These investments are not only secured by the U.S. government (meaning you’re unlikely to lose your investment unless the U.S. government defaults on its debt), but they also have built in protection against inflation!
The I bond rate is set every 6-months based on the current inflation rate. The current yield for I bonds is 6.89% and you have until April 2023 to lock-in that rate.
The yield for TIPS is currently 6.94%. TIPS offer more inflation protection than I bonds, but are also more volatile since they fluctuate every month due to, inflation rates, interest rate movements, dividend fluctuations, and the ETF’s share price.
While both I bonds and TIPS offer strong returns when inflation is high, they do differ in some important ways:
I Bonds
- Returns from I bonds take the form of higher interest rates, and you receive the principal and interest earned after you close out your position.
- I bonds have a minimum holding period of one year. Also, if you sell them before 5 years have passed, you have to give up 3 months of interest payments.
- Interest rate increases won’t affect your investment in a negative way
Treasury Inflation Protected Securities (TIPS)
- Returns on TIPS take the form of dividends paid out to shareholders.
- TIPS are ETF’s which means you can buy and sell them whenever you want.
- You can lose money if interest rates increase
There are many ways to boost your savings no matter the market conditions. At the end of the day though, growing your wealth doesn’t have to be complicated, sometimes it can be as easy as doing a little bit of research and making a few clicks on the keyboard.
