BETTENDORF, Iowa — According to the Consumer Price Index, prices on goods cost Americans 5% more in March 2023 than they did 12 months prior. That's down from the peak of 9% in June 2022. The Federal Reserve has raised the benchmark rate for lending by more than 4%, making borrowing money more expensive.
News 8's David Bohlman spoke with Drue Kampmann with True Financial Partners in Bettendorf, Iowa to find ways to make these higher interest rates work for you.
NEWS 8: The inflation rate has slowly been coming down but many Americans are still living paycheck to paycheck... is it all bad news?
DRUE: We have seen a deceleration in inflation really from its peak, and it was reflected in the March CPI report, which is the Consumer Price Index, and it measures the change in the price of consumer goods and services year over year. So in March, it was up 5%. And if you look back at February, it was up 6%. So comparative from February of last year to this year was 6%. So we're seeing it, but the Federal Reserve continues to raise rates, which they have a tighter monetary policy.
The objective here is to deteriorate demand, which can deteriorate consumer spending. So higher interest rates will deteriorate people from spending money. But the to answer your question, you know, the silver lining in higher interest rates is it incentivizes savings. I mean, folks are paid more interest on their savings now than we've seen in a long time.
NEWS 8: What are some of the deposit accounts that have seen an increase in return for those who use them?
DRUE: Even in your simple savings accounts, you should be seeing higher interest rates, high yield savings accounts, we're seeing 4-5% rates of returns, we're seeing money markets, a 4-5% rate of return, and even go into CDs and US Treasuries, which haven't been very attractive for really the last decade are in that 4-5% range.
Now rates are fluid, but yesterday, I purchased a six month CD and a six month Treasury that paid over 5%. Now shorter interest rates or shorter rates are more attractive than long term rates right now. And it has to do with the inverted yield curve. So people are getting paid more money now.
NEWS 8: For people with a 401(k) who may have seen a decrease in value over the last year or so, what questions should we be considering to make sure we are investing smart?
DRUE: If you have a longer timeline, and you're younger, keep buying. I mean, keep investing, because today's asset prices are less than they were 12 to 18 months ago. So it's kind of like going shopping, you want to keep shopping when things are on sale. So if prices are lower now, keep buying. If you have a shorter timeframe, and you've stayed fully invested, I would say stay the course. Because if you're more conservative, oftentimes you're going to be more exposed to or invested in such tools like bonds, well, since interest rates have gone up so much, bond prices have gone down, yet you've been paid more on it. The expectation is interest rates are gonna go back down. So those bond prices will again, reflect that in their pricing and go back up. So I would always say stay the course. But keep buying if you have a longer timeframe.
NEWS 8: Borrowing money has gotten more expensive but we can't always afford to hold off on getting a different vehicle or buying a different home. Are there ways to save money even when borrowing is high?
DRUE: That's a tough question. Because when there's a need, you've got to satisfy that need. And if you have to buy a new vehicle, while prices are higher interest rates are higher, we're certainly seeing that cost in purchasing and financing new cars. Buying a home, you've got a couple of different options. If you have the fear of maybe interest rates continuing to go up, you might want to go ahead and lock that in, specifically, let's say on a 30-year mortgage.
But the other thing that I would throw out there is maybe even look at those adjustable rate mortgages. Because if you buy a 30-year at a higher rate today, you might be able to refinance at a lower rate down the road. But if you've purchased an ARM or adjustable rate mortgage now, it'll be a more attractive and lower rate than what a fixed rate is. But then you may be able to refinance at a lower rate down the road too or into a fixed rate lower down the road. So look at your options when you're financing, especially a big purchase like that in a new home.
Do you have a money question that you want True Financial Partners and WQAD to answer? Send your question to David Bohlman at dbohlman@tegna.com.
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