Is It Better to Save or Invest When Rates Are High? Key Points to Know

When interest rates are high, deciding whether to prioritize saving or investing becomes especially pressing. Recently, the Federal Reserve made its first rate cut of the year, lowering its benchmark rate by a quarter point to a range of 4.00% to 4.25%. The move has already begun to ripple through the economy with mixed signals. 

Mortgage rates are slowly falling, with the 30-year fixed rate dipping to around 6.26%, the lowest since early October 2023, helping to spur a surge in refinancing. At the same time, savings rates, especially on high-yield accounts and CDs, may be poised to decrease as banks adjust to the Fed’s new target. 

These shifts amplify the important question that many people are asking now: is it better to save or invest when rates are high (or just beginning to decline)? Higher rates provide benefits for savers and added costs for borrowers, but investing can still offer opportunities for growth and protection against inflation. 

The right answer depends on your goals, how soon you need the funds, and how much risk you can tolerate. Read on for key points to know so you can better decide whether saving or investing makes sense for you in today’s rate environment.

Benefits of Higher Rates for Savings Products

One of the most direct effects of elevated interest rates is the boost they provide to savings products. High-yield savings accounts, certificates of deposit, and money market accounts typically become more attractive when banks raise their rates. 

Savers can see significantly higher returns on cash that is kept in federally insured accounts, which offer both security and liquidity. For people building an emergency fund or saving for a short-term goal, these products become an especially appealing option when interest rates are high. However, money markets and savings accounts and shorter term CDs and T-bills will all see their yields decline very quickly as the Fed cuts rates, while short term fixed rate annuities, called MYGAs ( Multi Year Guaranteed Annuities), will not. So, building a ladder of short term CDs/fixed annuities over, say, a 5 year period,