STEPS TO TAKE WITH YOUR MONEY WHEN RATES, RECESSION RISKS ARE HIGH

Another increase means higher borrowing costs for consumers, including on credit cards, personal loans, auto loans and more. And even if central bankers are done raising rates, those interest rates are unlikely to fall until the Fed cuts its borrowing benchmark — a move that U.S. central bankers think still remains off in the distance.

The highest rates in more than two decades mean that money is no longer cheap. In this new era of monetary policy, these are the important moves you should be making with more money.

1. Keep a long-term mindset Differing expectations about what the Fed could do with rates in the months ahead could lead to more market volatility. Plunging stocks mean pain for investors, and the possibility of a recession or even higher Fed interest rates could worsen the volatility. But don’t succumb to market volatility and change your approach. Remember, a diversified portfolio and a long-term mindset protect you through the most brutal times in the stock market.

2. Pay down debt

Consumers with fixed-rate debt, commonly on loans such as mortgages, won’t feel any impact when the Fed raises rates. But Americans are more fragile if they have a variable-rate loan, especially if it’s debt on a high-interest credit card. The average credit card rate is hovering at the highest levels ever recorded, thanks to the Fed’s recent inflation fight, according to Bankrate data.

Consider consolidating that debt with a balance-transfer card to help you make a bigger dent in your principal balance, with some cards offering borrowers 0% introductory annual percentage rates (APRs) for up to 21 months. However, the time to take advantage may be now. Consumers may find it tougher to get approved for one of these offers — or issuers may get rid of them altogether — if the economy ever takes a turn for the worse.

Homeowners with an adjustable-rate mortgage or a home equity line of credit (HELOC) might want to consider refinancing into a fixed-rate loan.“You don’t want to be a sitting duck for higher interest rates on your credit card or home equity line of credit,”McBride says. Home equity lines of credit have also historically been a cheaper way to borrow money, but that’s now looking like a relic of a low-rate era with HELOC rates now pushing 9%.

3. Boost your emergency savings With the economic outlook uncertain, now’s an important time to take a careful look at your finances and find ways to boost your emergency fund if you don’t already have the recommended six to nine months’ worth of expenses stashed away. But the silver-lining to rising rates: Savers can find the best yields in over a decade that can even help them grow their purchasing power, with many yields at online banks now beating inflation.

4. Find the best place for your cash Savers can earn even more money on their cash by switching to a high-yield savings account. Many accounts on the market are offering consumers who bank with them yields near 5%. If you put an initial $10,000 deposit into an account with a 5% annual percentage yield (APY), you’d earn $500 in interest, compared with just $60 on the average savings yield of 0.60%.

Consumers who already have an emergency fund may even want to start thinking about locking in those elevated yields for the longer haul by opening a 2-year or 5-year certificate of deposit. Savings account yields are variable, and banks often don’t wait for the Fed to cut rates before lowering their own yields.

5. Think about recession-proofing your finances

Given that plenty of risks lie ahead for the Fed, always be on the lookout for ways that you can recession-proof your finances. Along with building up your emergency fund, experts say it comes down to living within your means, staying connected with your network, identifying your risk tolerance and staying focused on the long haul if you’re an investor.

“To relieve individuals, households and businesses of historically high inflation, the Fed has been prepared to accept the risk of a recession if it achieves the mandate of stable prices,” says Mark Hamrick, Bankrate senior economic analyst.“Choosing from the least of two evils, it isn’t dissimilar from when firefighters trade some damage from water for fire damage.”