Many Americans are suffering financially under today’s relatively high interest rates. More costly mortgage payments, auto loans and credit card rates are not fun. At the other end of the scale, however, many are actually benefiting from the higher rates. For them, high interest rates are good news.
In this article, we will take a closer look at the advantages of today’s higher interest rates. Why don’t you come along for the ride and see how you might reap rewards from them? Also, if you feel you already are benefiting from them, let us show you ways in which you might do even better.
The Money Market
The money market offers an ultra-safe guaranteed return on your money. The returns are even safer than most bonds.
True, generally you are better off in long-term investments by having your money in a bundle of stocks and bonds such as those offered by financial companies. Those returns, however, are generally best when held over time. After all, a major market downturn could happen at any time, usually without warning. In some cases both stocks and bonds take a tumble and leave you worse off for some time before they recover.
If you are forced to withdraw money at the time of a market crash, your whole portfolio will suffer by being lower over the long term.
If you cannot afford for your investments to take a sudden fall around the time you are forced to withdraw them, therefore, you are safer in the money market where you can know for sure how much the investment will be worth in the future. A lot depends on your age and whether you are retired and no longer receiving an income from work.
When you invest in the money market you can be totally confident that the funds will not only maintain their value, but also will grow. True, at times the money market rate can be low. Five years ago, in the wake of COVID, money market rates—which closely track the Federal Funds rate—were close to zero as the Federal Reserve lowered the Federal Funds rate to stimulate the economy.
Then, as inflation picked up, the Fed raised its rates to tamper the rising inflation. During 2023 they were as high as 5.25%. They fell during 2024, but not by all that much. In September 2025 the rate is still hovering around 4.25%.
As a result, most money market yields, which tend to be a little lower than the Fed rates, remain on average a respectable 4%, which makes them a good investment now.
Another reason to be in the money market is at a time when you are between investments and you want your cash to retain and boost its value in the meantime.
Should you decide to invest in the money market, be warned. Check how much a money market account is returning in interest a year. Some bank accounts are marketed as money market accounts, but their yield remains around 1%. Stay clear. You can do better than that. Indeed, you can do a lot better than that.
Look to invest in a money market that is now yielding around 3.5% to 4%.
Certificates of Deposit
If you are expecting rates to come down in the coming months, and perhaps stay down for a while, you cannot go wrong with investing money that you do not immediately need in a Certificate of Deposit (CD). In that way you will keep your money growing at today’s rates as long as your money is invested in that fund.
CDs are offered with different terms, such as six months, a year, two years or even up to six years. If, for example, you put $25,000 in a CD at 4.40% over six years it will deliver $6,450 in interest. An investment of $50,000 over one year would produce $2,100 in interest.
A problem with CDs used to be that you could not touch that money during the time it was invested. Today’s CDs, however, are much more flexible. In addition, the amount you are required to invest can be as low as $500. Conditions vary from one investment company to another, so shop around to find one that suits your budget and your financial needs.
• Special savings accounts
Most bank savings accounts are still yielding around a miserable 0.5% a year.
These accounts serve their purpose if you have money in them for only a short period of time. If they consist of only a small amount of money, of course, you have not much to gain from a higher interest rate anyway, so not to worry.
But if you have a larger amount of money available, you will want to find a special savings account in which to invest. These accounts offer returns of around 3.6% right now and a number of banks offer them as part of your overall banking account. An example is Capital One’s 360 Performance Savings account, which comes a part of a regular banking account. American Express offers a similar savings account.
You are able to move money as often as you like in and out of these special savings accounts.
The interest rates on these accounts will almost certainly fall if the Federal Reserve lowers the Fed rate in coming months or years, but they will definitely be better than the 0.5% on other savings accounts for some time to come.
Here’s a tip to using these special savings accounts: Move money in and out of them regularly to achieve as high a return as possible. Remember that the overall interest you receive on the account is based on the daily balance; so you will want to try to increase that balance on as many days as you can.
Example: Let’s say you have $3,000 in your checking account on the fifteenth of the month that will go toward paying your rent, mortgage or other bills at the end of the month. Transfer that $3,000 into the high-interest-bearing special savings account on the fifteenth. Set up an automatic transfer to have the $3,000 transferred back into your checking account a day or two before you are ready to pay your rent or mortgage (or it is withdrawn from your account).