Transcripts

"Money File"-Cashing In On Rising Interest Rates

SUSIE GHARIB: In the money file tonight, how higher interest rates could benefit your cash savings. Here's Terri Cullen, personal finance columnist at "The Wall Street Journal" online.

TERRI CULLEN, PERSONAL FINANCE COLUMNIST, WALL STREET JOURNAL ONLINE: At their last meeting, Federal Reserve officials signaled they may need to boost short-term interest rates in order to contain inflation. What's driving inflation? Higher energy costs, for the most part. The Fed has held short-term rates steady at 5.25 percent for nearly a year. By boosting rates, the Fed keeps a lid on economic growth that drives inflation. While higher interest rates may mean higher finance charges on credit cards, car loans and adjustable-rate mortgages, it also means higher yields for cash savings.

Competition among banks and brokers for cash deposits is fierce, and many online and traditional banks now offer savings accounts with yields of more than 5 percent. If the Fed raises rates, those yields will go even higher. Until the Fed makes its move, put off locking in cash in a CD and consider investing in a high-yielding savings account or money-market account. Both are FDIC-insured up to $100,000. And unlike CDs, you can move your savings to a higher-yielding account if rates move higher. You can compare rates on savings accounts and money market accounts online and ask your bank for a better deal if you see higher rates advertised elsewhere.

Before you choose an account, ask about fees. When rates were low, banks slashed fees on savings accounts to attract investors. But as rates ticked higher, fees went back up too. In addition to account maintenance fees, you may be charged if the balance falls below the required minimum. Find out if the account requires a minimum balance to qualify for advertised rates. Many banks require a minimum deposit of $1,000 to get their best deals. Also make sure the rate offered isn't just a trial offer that will go away after you've opened the account. I'm Terri Cullen.