Ways to spend — and save — as interest rates stay high and tariffs mount

Consumers should brace for borrowing costs to stay elevated, prices to rise and stock markets to remain on edge for at least a little longer, analysts say. That’s because the Federal Reserve opted Wednesday to hold interest rates steady, flagging rising uncertainty from White House trade policies.

But shoring up your finances requires playing defense as well as offense — keeping tabs on the money coming out of your accounts while maximizing the returns on the savings you’re piling up. And even an economy stalked by the prospects of stagflation offers some opportunities to do both.

Spending

If there are any big-ticket purchases you’ve been planning to make this year, the time is probably now. Major appliances, cars and other items with components or assembly in Canada or Mexico or those containing steel and aluminum are expected to get pricier as President Donald Trump’s tariffs on those countries and materials take hold.

While the auto market has begun to stabilize early this year, industry analysts expect disruptions.

“There is no way you’re going to see a better discount if you wait three months,” Ivan Drury, director of insights at Edmunds, told NBC News this week. A recent estimate forecasts vehicle prices to increase by anywhere from $4,000 to $12,500 because of Trump’s trade war with the United States’ closest trading partners.

Creating room in your budget to make costly essential purchases sooner rather than later could require paring back on nice-to-haves like TVs and concert tickets, which many households already appear to be doing.

Spending on discretionary purchases rose just 2.2% as of early March since this time last year, according to a JPMorgan analysis released Thursday. That’s lower than the 4.3% growth for essentials and the 3% uptick in spending overall. Consumers are shifting more of their outlays from categories like airfares, especially basic economy tickets, toward purchases at pharmacies and other health care expenses, the researchers found.

The Fed’s decision to hold rates steady means the costs of carrying a credit card balance will remain steep. The average credit card interest rate is around 20.1%, according to Bankrate — down from the record of about 20.8% but still high enough to take a serious bite out of borrowers.

Now might be a good time to take advantage of a zero-percent balance transfer offer, said Greg McBride, chief financial analyst at Bankrate, and “focus on getting that debt paid off during the promotional period.”

Financial planners typically advise consumers to inventory their card debt and start paying down balances bearing the highest interest. Another common strategy is the snowball method, which involves paying off the smallest, most manageable debts first but ultimately saves consumers less money.

Mortgage rates also don’t seem likely to drop much in the near term. Applications for home loans took a downturn last week, reversing a recent streak of gains, after average rates for popular 30-year fixed mortgages inched up for the first time in nine weeks. So if you’re parked on the sidelines of an inaccessible housing market, now may be a good time to focus on tackling any existing debts and improving your credit.

In the meantime, McBride advised existing homeowners to resist the urge to tap their home equity for all but the most essential contingencies.

“Home equity borrowing rates are high, so save that for major home repairs or needed upgrades,” he said.

Saving

Many retirement savers have been stressing out over their 401(k)s, and Wall Street is still bracing for more uncertainty from the ongoing trade war, with sweeping new tariffs on track for April 2 and a series of retaliatory moves still coming into focus. That could keep markets on edge and monthly returns in the red, but advisers caution savers and investors against making hasty moves out of fear.

“Don’t let short-term volatility distract you from your long-term objectives,” McBride said. “While many workers are worried about the volatility in stocks, what we’ve seen is a very normal — and overdue — market correction.”

Still, some experts point to ways long-term savers can buffer losses and ease their nerves. For example, Treasury inflation-protected securities (TIPS) — a type of bond issued with spans of five, 10 or 30 years — are indexed to inflation to protect investors from declines in buying power. A 10-year TIPS could help tide over anxious 401(k) holders, Lee Baker, founder of Claris Financial Advisors, told NBC News last week.

The tricky part is that buying bonds right now requires a measure of betting on how other investors will respond to White House policies. Treasury yields have been falling as investors look for safer investments than corporate stocks, but those who scoop up bonds have to accept missing out on potential gains if markets rebound. 

On the upside, higher-for-longer interest rates translate to appealing returns’ sticking around for some savings accounts.

Consumers can still find high-yield savings accounts with rates up to 4.86%, according to NerdWallet — a prime opportunity to bulk up their emergency funds. Sam Deane, founder and president of the advisory firm Rora Wealth, told NBC News at the start of the year that he typically suggests his clients stash three to six months of living expenses, while those in more precarious industries — such as federal work — might want to consider a bigger buffer.