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Grow Money Safely as Inflation Spikes

What Rising Interest Rates Mean For Your Savings

APY and APR differences

March 24, 2023

With so much talk about how inflation is making everything more expensive and all of the attention on the Federal Reserve’s steady interest rate hikes and how expensive borrowing is becoming, it can be easy to overlook an important inverse fact. For the first time in a long time, saving can become a valuable strategy because of those same rising interest rates.

In fact, individuals taking advantage of certain savings programs can actually reap a benefit from higher interest rates. If you’re a saver, inflation and the Fed’s efforts to control it can actually be a good thing. Here’s how.

The Fed, Inflation and Interest Rates

Interest rates have been steadily climbing—from less than one percent in March 2022 to a range of 4.5 to 4.75 percent in February 2023. With increases in nearly every month in between, the FOMC—the 12-member Federal Open Market Committee—raised the rate by 4.25 percent, and the most recent increase in February 2023 raised the costs of borrowing to levels not seen since 2007. More incremental increases are expected throughout 2023 until inflation goes back to its targeted level of two percent.

Finance experts seem to think that may take a while as the Fed ties its interest rate decisions to the labor market and inflation.

  • January 2023’s jobs numbers released in February showed increases in nonfarm payrolls of 517,000 versus the projected 187,000, and unemployment fell to 3.4 percent, slightly lower than the 3.6 percent estimate.
  • While inflation peaked in June 2022 at 9.1 percent, gradual decreases have brought it down to 6.4 percent in January 2023.

The thinking is that a hot labor market often means increases in wages to recruit talent. Employers often then pass on those increased costs to the consumer, resulting in higher prices for services and goods and accompanying inflation. Being able to assess an interest rate change’s full effect takes time. So, while right now may not be such an advantageous time to spend, it can be a great time to save.

Why Save When Inflation Is High

When inflation is high, the cost of everything rises. Your money doesn’t go as far. The bag of groceries that used to cost about $40 now costs $50 or more. Cars and houses, for example, cost more, and if you have to borrow money to buy, the loan will cost more too. Even using a credit card can be more expensive if you’re unable to pay off the monthly balances. Many financial advisors recommend that you hang on to your money, and it makes sense for a number of reasons.

  • As long as consumers continue to buy and fuel higher prices, the Fed will continue to raise rates until inflation falls. By saving money instead of spending it, you’re doing your part in controlling inflation.
  • Emergencies and unanticipated problems happen. Cars break down and need repairs, home systems eventually need to be replaced, and health challenges often have accompanying bills. Maintaining savings as an emergency fund gives you the option of not having to run up large sums on a high-interest credit card.
  • Placed wisely, savings can grow in a low-risk investment environment that’s safer than many other vehicles. Yes, over the last decade, savings instruments were often overlooked because they were typically earning less than a percent in interest. However, with rising interest rates, financial institutions are now offering much better rates of four percent or better. That’s the difference between $10,000, for example, earning less than a hundred dollars over a year versus that same $10,000 earning $400 or more for the year.

While high-interest rates may make many material goods and services unaffordable, those same high-interest rates can help your money grow safely until prices correct and stabilize. If you have savings, and you’re not taking advantage of the rise in interest rates, it’s time to start looking around. If you’re in Louisiana, La Capitol Federal Credit Union and our share certificate savings accounts are a great place to start.

La Capitol Share Certificate Savings Accounts

Instead of letting a financial nest egg languish in a low-earning account, put that money to work earning healthy dividends. Share certificate savings accounts are what most banks call CDs—certificates of deposit. With a share certificate savings account, you can put away a lump sum of money for a specified period of time and earn an agreed-upon amount of interest.

Share certificates are great ways to set aside a sum that you don’t want to touch, yet it will grow, compounding monthly throughout the term of the account. At the end of the term, you can let it roll over, reinvest in a more advantageous share certificate, or take your money and earnings to use as you see fit. We have share certificates suitable for every budget and timeframe.

Featured Share Certificates—Right now, La Capitol is featuring both a 16-month and a 26-month certificate. Simply make a minimum opening deposit of $25,000, and choose to enjoy a 4.64-percent annual percentage yield over 16 months or a 4.74-percent APY for 26 months. Dividends are compounded and credited monthly, and the extra perk is that you have the one-time option of bumping the dividend rate upward if interest rates continue to rise.

Our Other Share Certificates—Whether you want to save a little or a lot, we have a share certificate savings account for you.

  • 91-Day Share Certificate—In just three months, you can grow your deposit of $5,000 or more by two percent. Dividends post at the certificate’s maturity.
  • Six-Month Share Certificate—In six months, you can grow your deposit of $2,500 or more by 3.25 percent. Dividends are compounded and posted monthly.
  • Thrifty Saver Share Certificate—Open a share certificate savings account with as little as $500 invested for three, four or five years. Or, invest $1,000 for two years or $1,500 for a year. Dividends are compounded and posted monthly and range from 4.0 or 4.1 percent alone to 4.4 or 4.5 percent with an accompanying La Capitol checking account.
  • Mega Saver Share Certificate With One-Time Bump—Deposit $100,000 or more, and earn 4.1 percent over the course of a year or 4.2 percent over the course of two, three, four or five years. Open an accompanying checking account, and you can earn more—4.5 percent on $100,000 or more invested for a year, for example, or 4.6 percent for the longer terms. Dividends are compounded and posted monthly. Best of all, you have the option of a one-time dividend bump if rates for your account’s term rise.
  • Super Saver Share Certificate—This certificate also has a minimum deposit of $100,000 with terms of one to five years. While it doesn’t have a one-time bump option, it offers a slightly higher dividend than a mega saver account's initial dividend. Deposit $100,000 for a year, and earn 4.2 percent. Choose a longer term, and earn 4.3 percent. Add a La Capitol checking account, and you can increase your earning to 4.6 percent for a year or 4.7 percent for the longer terms. Dividends are compounded and posted monthly.

[Explore Your Share Certificate Options]

Making High-Interest Rates Work for You

If the idea of making your savings actually grow has you excited, take a look at our Share Certificates page. When interest rates climb, the possibilities for earning do too. At La Capitol Federal Credit Union, we want to help you do more than just save. We want to help you thrive and grow.

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