Get an overview of investments that can do well in an elevated interest rate environment, including potential risks and tradeoffs.
High interest rates can have a negative connotation with investors — especially in terms of their impact on the stock market and economy. When interest rates are high, so is the cost of borrowing, impacting everything from mortgages and credit cards to student loans.
But with increased rates also comes opportunity, particularly for short- and medium-term financial goals.
As you review the below investing opportunities, connect with us. We understand your financial situation and can make personalized asset allocation recommendations based on your risk tolerance, time horizon and financial goals.
Cash and cash equivalents
When interest rates rise, the popularity of cash investments also rise since investors can earn more competitive rates on these products.
Cash investments to consider
- Sweep accounts: By transferring unused funds into safe, savings or investment options at the end of each business day, sweep accounts allow you to earn interest on money that you’re not actively saving or investing. However, rates may be lower given the daily accessibility to funds.
- Money market funds: Money market funds are mutual funds designed to provide liquidity and preservation of capital by investing exclusively in high-quality cash instruments (generally maturing in 60 days or less). Money market funds can offer higher yields than savings or checking accounts. However, they generally require waiting a day to access cash from a withdrawal and in the case of prime money market funds that invest in securities not backed by the U.S. government, could limit redemptions or charge liquidity fees during adverse market environments.
- Treasury bills: These short-term U.S. government debt obligations, backed by the U.S. Treasury Department, have a maturity of one year or less, from only a few days to a full 52 weeks. Since they’re considered a very safe investment, interest earned can sometimes be lower compared to the overall market.
- High-interest savings accounts: High-interest savings accounts, which are among the most conservative solutions, offer immediate access to cash and insurance from the Federal Deposit Insurance Corporation (FDIC) against loss but generally do not offer the most competitive yields.