Here are some money moves to make amid high inflation and rising interest rates

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New government data showing record inflation probably comes as no surprise to consumers who are dealing with sticker shock everywhere from grocery store aisles to gas pumps.

Now all eyes are on the Federal Reserve, which is expected to continue raising interest rates in an attempt to curb inflation.

The central bank approved a 0.25 percentage point rate hike in March, with no less than six more potential increases expected this year. These hikes are poised to influence the interest rates consumers see on their credit cards, savings and mortgages.

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Therefore, it may be time to rethink how you manage these balances.

That’s especially true as efforts to rein in inflation have pundits watching for heightened risks of a possible recession in 2023 or 2024, according to Greg McBride, senior vice president and chief financial analyst at Bankrate.com.

All the effort you are making now to pay down your debts and increase your savings will help you if the economy ends up stagnating.

“Do it now while it’s getting good,” McBride said.

Credit card

Credit card interest rates are particularly sensitive to aggressive Fed interest rate hikes, according to McBride.

Most credit cards are indexed to the prime rate. When the Federal Reserve raises short-term interest rates, the prime rate follows.

Borrowers are already seeing the effects of the central bank hike in March, with the average rate dropping from 16.34% to 16.43%, McBride said.

“For the cardholder, your rate will mimic what the Fed has been doing all along,” he said.

If the Fed is particularly aggressive and raises interest rates by three percentage points over the next year and a half to two years, your credit card interest rates will likely also rise by that amount during this period.

“The action to take now if you have a balance and are trying to get out of debt, trying to protect yourself from high rates, is to grab one of these low rate balance transfer offers now,” McBride said.

This way, you give yourself an 18-21 month track to pay off your debt while protecting that balance from rate increases.

Savings accounts

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Online savings accounts are poised to be the most competitive place to invest your money as interest rates rise.

These accounts have interest rates ranging from 0.7% to 0.75%. Meanwhile, money market funds are still at 0.1%, although their rates are also set to rise, McBride noted.

Certificates of deposit, which require you to lock in an interest rate for a fixed term, should generally be avoided when rates rise.

Mortgages

Mortgage interest rates are now around 5% after a sharp rise that began early this year, McBride noted.

The rise equates to another 17% increase in home prices, McBride said.

For many borrowers, this can come as a shock.

“With the exception of a brief eight-week period in 2018, mortgage rates have been below 5% since 2011,” McBride said. “We’ve been very spoiled by the low rates, that’s for sure.”

For many, the window to refinance their mortgages for better deals, as many did in 2020 and 2021, is now closed.

However, such moves may make sense on a case-by-case basis, for example if you are moving from an adjustable or floating rate to a fixed rate.

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