High interest rates have been getting a bad rep these days. And I totally understand. They are raising the costs of just about everything, on top of inflation that’s already out of hand. But there are ways that high interest rates can work for you. In fact, they can make you a lot of cash!
So today let’s get into two ways to use high interest rates to your advantage, and turning that into even more money in hand.
GICs
One of the easiest ways to create passive income during high interest rates are by investing in guaranteed income certificates (GIC). That’s right, guaranteed. This is guaranteed fixed income that can be sold by Canadian banks and trust companies. They are low risk, offering fixed income from as little as 30 days, to as much as 20 years!
Right now, interest rates are high, and that means you can also get a high interest rate from banks as well. Basically, you’re lending money to the bank with interest paid back to you. And with interest rates at around 5%, that means you’re receiving interest of 5% each year from your investment.
It’s not always as good as 5%. During the pandemic, interest rates could be lower than 2%, which of course means you’re getting less than inflation for your cash. So it’s important to take advantage of these opportunities while they’re around. Especially considering this option is such a safe one.
P2P
Another option that’s been growing in popularity is peer-to-peer (P2P) lending, also known as “social lending.” Instead of providing your cash to a bank, you can provide it to a person or business, removing the middle man (the bank) in the process.
It’s great for everyone, really. P2P lending means you’re gaining strong returns from lending out capital. On the other side, the “peer” is receiving interest rates at a lower rate than the banks offer. However, it does come with more effort, and more risk.
On the plus side, you don’t have to provide a lot of cash if using a community lending program. You could just add $50 to a community fund, and get stable interest in return. However, a lot of people tend to use these programs if they don’t have good credit. That means it’s in no way guaranteed. Even so, using companies such as Prosper and Funding Circle can rid you of a lot of the headaches and worries.
What to do with returns
So now let’s say that higher interest rates start to fall back. You collect your cash but it doesn’t seem as lucrative as it once was to get back in. In that case, I would consider putting that cash towards real estate investment trusts (REIT).
A strong option to hold on your radar is Flagship Communities REIT (TSX: MHC.UN). This REIT has been making large transactions for its portfolio, as demand continues to grow for the strong institutions it holds. It also provides exposure into the United States real estate market.
The stock continues to hold value despite offering low double-digit 2024 adjusted funds from operations per unit growth year over year. Organic growth continues to make a huge play as well. And with a 3.73% dividend yield to consider, it’s definitely one I would watch this year and beyond after high interest rates fall.
