The Fed Just Raised Rates–How To Cash In On The Hike

The Federal Reserve raised its benchmark interest rate on Wednesday, September 16, lifting the federal funds target to a range of 3.75% to 4%. It was the first hike since July 2023, and the committee voted for it unanimously. For most households, that decision means costlier bills. Credit card rates, which now average above 22%, will drift higher, and the average 30-year mortgage already sits near 6.76%. A rate hike moves money in two directions, though. The same shift that makes borrowing pricier also makes idle cash and a handful of sectors pay investors more than they have in two years. Here is where you should be looking. Your Cash Finally Earns More When the Fed lifts rates, yields on some of the safest and most liquid places to keep money climb within days. That is the most direct way an everyday investor gains from this decision, and it carries almost no market risk. Short-term Treasury bills react fastest. You can buy them directly on TreasuryDirect.gov in maturities from four to 52 weeks, and the interest they pay is exempt from state and local taxes. Investors who want one-click access can hold bill-focused funds like the iShares 0-3 Month Treasury Bond ETF (NYSE:SGOV) or the SPDR Bloomberg 1-3 Month T-Bill ETF (NYSE:BIL). Money market funds catch up within a week or two. The average 7-day yield on the 100 largest funds was 3.51% early this week, according to market data, with Vanguard’s Federal Money Market Fund paying closer to 3.63%. Because these funds reset quickly, they tend to reflect the new rate faster than a bank savings account will. A few options keep cash liquid while it earns: High-yield savings accounts, some of which paid above 4% even before the hike, against a national savings average of just 0.38%. Certificates of deposit, which reward savers who can lock money away for a fixed term. Treasury bills and notes out to 10 years, quoted between 4.1% and 4.99% on Schwab this week. One fact keeps this honest. Inflation is running near 3.7%, so a 4% yield leaves only a slim real gain once rising prices are accounted for. On $10,000, the gap between the best cash account and an average one is the difference between protecting your buying power and quietly losing it, which makes finding and comparing the absolute best interest rates the single most important factor for success. Why Banks And Insurers Usually Win Higher rates feed almost mechanically into financial company profits. Banks earn a wider spread between what they pay depositors and what they charge borrowers, and that spread lifts net interest income. That mechanic is why lenders such as JPMorgan Chase & Co. (NYSE:JPM) and U.S. Bancorp (NYSE:USB) tend to attract buyers when the Fed tightens. The Financial Select Sector SPDR Fund (NYSE:XLF) packages that exposure into a single holding for investors who prefer the sector over one name. Insurers benefit through a different door. They hold large pools of cash to cover future claims, and higher rates mean that cash earns more while it waits. Prudential Financial (NYSE:PRU) and Chubb (NYSE:CB) sit in this group, as does the SPDR S&P Insurance ETF (NYSE:KIE). The advantage is real but not unconditional. If higher rates eventually slow the economy and loan defaults rise, the spread that helps banks can narrow again. Rate-driven strength works best while the broader economy holds up. The Inflation Behind The Hike Also Lifts Energy The Fed did not tighten in a vacuum. It moved because inflation stayed hot, pushed largely by energy costs tied to conflict in the Middle East. That same pressure tends to lift energy producers. When oil and gas prices rise, revenue at companies like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) rises with them, which is why the sector often tracks the very inflation that forced the Fed’s hand. The Quiet Rotation From Growth To Value Rising rates change how the market prices stocks. A higher discount rate shrinks the present value of profits promised years into the future, and that is exactly the kind of profit fast-growing technology stocks are valued on. Value stocks and steady dividend payers tend to hold up better. Their cash arrives sooner, and their payouts look more competitive once a savings account yields 4%. The same math weighs on real estate investment trusts, which lean on cheap borrowing to fund their deals. Markets showed the split on Wednesday. The S&P 500 rose 0.4%, and the Nasdaq gained 0.8% after the announcement, yet the leadership underneath is tilting toward the companies that higher rates reward. The 10-year Treasury yield, meanwhile, pushed past 5% for the first time since 2007, which raises the bar every stock has to clear to look attractive. Before You Commit Any Dollars The strongest move after a hike is often the least thrilling one. Clearing a credit card balance that now costs more than 22% a year beats almost any yield you can safely earn on cash. Two steps come before chasing any of this: Keep an emergency fund in place, ideally parked in one of the higher-yielding cash accounts above. Pay down variable-rate debt before it reprices against you. Timing matters too. The Fed’s own projections point to the chance of another hike this year, with officials penciling in a year-end rate between 4.1% and 4.4%. If more increases are coming, locking into a long certificate of deposit today could mean missing a better rate within months, while short-term and floating options stay flexible. The first hike in more than two years did more than raise the cost of borrowing. It reopened a window that had been closing for savers, and it handed a measurable edge to banks, insurers, and energy. How wide that window opens depends on what Chair Kevin Warsh and the Fed do next, and their own forecasts suggest they may not be done. image credit: Author Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.