At the beginning of May 2023, the Federal Open Market Committee—the branch of the Federal Reserve that determines monetary policies—raised interest rates by a quarter percentage point (.25%). This increase is part of a series since 2022, which brings the rate to 5%—the highest since 2007. In times of rising interest rates, savvy investors are looking to make wise decisions—and it is good to know the strategies you can take to stabilize and protect your portfolio. Keep reading to learn about safe investment and savings options that could provide a cushion during times of rising interest rates.
While not exactly an investment, a simple way to put your money to work immediately (while still having the option to liquidate your funds at any time) is through bank accounts like rewards checking accounts and high-yield savings accounts.
With a rewards account, you could earn cashback for shopping, incentives for points, and other benefits, all with quick access to funds and low risk factors. You might also consider a high-yield savings account (HYSA), many of which have higher interest rates than other market investments where your cash and returns are more volatile. With a HYSA, you always have access to your money without risk, while you earn the rewards in terms of interest rates.
Treasury Inflation-Protected Securities (TIPS)
While savings and checking options are suitable for modest returns, these accounts don’t adjust for inflation, so your purchasing power could diminish over time. Treasury securities are another safe investment option. TIPS are considered low-risk investments since they’re backed by the US government and offer fixed interest payments every six months until they mature. This way, if inflation rises, so too will the payouts, with the principal adjusted to reflect the change.
Plus, if the earned amount is higher than your initial investment, you’ll receive the higher amount—but if the principal is lower, you get the original amount.
Real estate can be an excellent investment option when seeking to earn income or diversify your portfolio, especially during times of rising interest rates. You could choose to invest in a rental property if you are willing to have a more hands-on experience or a Real Estate Investment Trust (REIT), which provides exposure to an industry with a history of inflation-adjusted growth. Real estate could provide stable yields from rental income and capital appreciation, which could make it a safe option during periods of rising interest rates. Of course, there’s a tradeoff if you are taking out a mortgage loan (and the accompanying interest) to make this investment.
Traditionally, when talking about investing in commodities, most people are discussing gold. But if gold is not your favored choice, there are others: natural gas, coffee, or grain might work for you, too. Even though these commodities are affected by supply and demand, commodities markets have shown relatively sustained growth over the long term. However, remember that investing in any commodity comes with volatility, requiring guidance, research, and monitoring.
Savings bonds issued by the US government are generally considered safe since the federal government guarantees them with fixed interest rates and are available in varying maturities.
When you buy a savings bond, you lend money to the government, and it agrees to pay back that money with interest. There are two types of savings bonds: EE Bonds, which are guaranteed to double in value in 20 years, and I Bonds, which earn both a fixed interest rate and a rate based on inflation.
Savings bonds might be ideal for investors looking for a steadier and safer return, even in times of rising interest rates.
When it comes to investing during times of rising interest rates, diversification is key. If you are looking for low-risk investments that have the potential to grow during uncertain times, a high-yield savings account, TIPS, or savings bonds could be a great choice. Conversely, if you are still seeking higher returns on your investment, commodities and real estate could be good options—but always research before diving in. With the right balance of smart banking strategies and savvy investments, you can secure your financial future in any market climate.