Now that the Federal Reserve raised interest rates seven times in 2022, there are some factors that you should consider in your financial planning.  When it comes to interest, it makes a difference whether you are a borrower or a lender.  We’ll talk about the factors as a lender, or saver, in today’s post.  Stay tuned for our next post on considerations as a borrower.

After a decade of extremely low interest rates, we finally have interest rates that can help savers.  Here are a few areas where some adjustments to your plan may be in order.

Is your money working for you?

Did you know that, as of February 2023, you can get 3.75% APY on your savings account at a large national bank and even higher if you go with some regional banks?  That means you can earn $375 on $10,000 of your emergency fund just by having it in one of these accounts.  On the other hand, many of the large national banks are still only paying .01% on their savings and money market account.  So, you can earn .01% or you can earn 375 times that amount by looking around for better interest rates.

Reconsider your accelerated mortgage payments

Have you been making additional principal payments on your mortgage to pay it off more quickly?  If your mortgage interest rate is at 3.25% and you are earning 3.75% on your funds in the bank, you may want to take the extra funds that you’ve been dedicating to mortgage payments and earn more on those funds in the bank.

How about your tax return?

For at least a decade, interest rates were close to zero.  Aside from avoiding giving your hard-earned money to the government any sooner than you needed to, there was little reason to ensure that you weren’t withholding too much from your paycheck in income taxes – unless you were actually investing.  Now that we have reasonable interest rates, you could be earning interest on those dollars.  The government doesn’t pay you interest on those dollars unless they unnecessarily delay your tax refund after you’ve filed your tax return.  So, now it has become a question of whether you earn interest on those dollars or the government earns interest on your dollars.  The caveat here is that you would need to put those extra dollars where you’ll actually earn the interest income rather than spending the extra dollars.

This article is intended to be educational and thought-provoking rather than financial advice.  When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals.  During our financial planning process, we examine these factors and many others to determine appropriate financial strategies for YOU.

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