Navigating high-interest rates: should you save or borrow?

Personal savings
Written by: Matt Weightman, SVP, Community Banking Division Manager
Two people looking at a tablet on the couch

In a high-interest rate environment we are faced with a financial decision: should we save our hard-earned money or turn to borrowing? Let's explore both options and see what may be right for your financial situation.

The benefits of saving in a high-interest rate environment

When interest rates are high, saving money can be a smart move. Here's why:

  • Capitalize on higher rates—Saving in a high-interest rate environment allows you to maximize the returns on your savings accounts and certificates of deposit (CDs), making your money work harder for you. Consider opening a High Yield Savings Account to earn interest on money you're not using but can tap into if you need it. 
  • Risk mitigation—Saving ensures that your financial reserves are readily available for unexpected expenses or emergencies which is important to plan for. You can learn how to build an emergency fund. And if you’re worried about storing money in an account, the majority of banks are Federal Deposit Insurance Corporation (FDIC) insured, so you can rest easy knowing your savings are secured. For example, if you open a CD account with a federally insured institution, up to $250,000 of your total funds on deposit at that institution are protected by the U.S. government.
  • Long-term financial goals—Building a financial cushion through savings can help you reach long-term goals like homeownership or retirement. At Banner, we have a variety of personal finance calculators to help you achieve financial success. From paying off debt to saving for a big purchase, there’s a calculator for everyone.

Remember, while higher rates are good for deposit and savings accounts, they’re not good for certain types of debt like credit card debt. When rates are high, it’s good to pay off or considerably lower any balance due.

Say you have a $1,000 balance on a credit card with an interest rate of 20%. If you pay the minimum payment due of $40, it will take more than 30 months to pay off the balance and you will end up paying a total of about $1,300. Now consider if you have a $1,000 credit card balance with an interest rate of 30%. If you pay the minimum payment due of $40, it will take about 40 months to pay off the balance and you will end up paying more than $1,500.
Your credit card statement should include a late payment warning and a total minimum payment warning to help you know how much “extra” you are paying to carry a balance.

Borrowing wisely in a high-interest rate environment

On the flip side, borrowing judiciously in a high-interest-rate environment may help you pursue your financial goals:

  • Opportunity-driven ventures—High interest rates often signal a robust economy, making it an ideal time to invest in purchases that yield higher returns, such as real estate or small businesses. Additionally, higher rates mean less buyer competition which forces sale prices down, opens up more choices for buyers and reduces buyer risk.
  • Debt consolidation—Consolidating high-interest debt into a lower-interest loan can save you money over time, even in a high-interest rate environment. For example, you can apply for a Home Equity Loan with a lower, fixed interest rate and use it to pay off other debt, while paying down the principal. This can make your monthly bills more affordable and easier to keep track of.
  • Strategic financing—If you own a business, you can use borrowed capital to expand operations or invest in new technologies when the potential return on investment justifies the cost of borrowing.

Ultimately, the decision to save or borrow depends on your individual circumstances. Our dedicated team is here to guide you through these financial decisions. I encourage you to consult with a banker to create a plan that aligns with your goals and current market conditions. Whether it's saving for a brighter financial future or seizing strategic borrowing opportunities, we’re here to support you every step of the way.