Passive Income Seekers: How High Interest Rates Can Work for You

Interest rates may remain high, but there is a low risk and medium risk option to take full advantage of while they remain elevated!

| More on:
edit Real Estate Investment Trust REIT on double exsposure business background.

Image source: Getty Images

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Construction work on a site
Dividend Stocks

2 Engineering & Construction Stocks You Can Buy and Hold for the Next Decade

Two prominent engineering and construction stocks are buying opportunities before the industry rebounds and grow in the next decade.

Read more »

Canadian Dollars
Dividend Stocks

For a Shot at $5,000 in Annual Passive Income, Buy 1,975 Shares of This TSX Stock

Are you looking to earn steady income? While there is no certainty in stocks, this stock can give you a…

Read more »

Target. Stand out from the crowd
Dividend Stocks

1 Magnificent Canadian Dividend Stock With 33% Upside to Buy and Hold Forever

Dividend stock Brookfield Business Partners LP (TSX:BBU.UN) is a powerhouse of growth, with even more to come in 2024.

Read more »

top TSX stocks to buy
Dividend Stocks

Passive Income: How Much to Invest to Get $6,000 Each Year

TSX energy stocks such as Enbridge can help you earn a passive stream of recurring income.

Read more »

protect, safe, trust
Dividend Stocks

Income Investors: 2 Safe Dividend Stocks to Own for Passive Income for Years

Long-term passive-income stocks should ideally offer enough dividend growth to counteract inflation while preserving or growing your capital.

Read more »

analyze data
Dividend Stocks

The 1 Best Growth Stock on the TSX Today

Fairfax Financial Holdings (TSX:FFH) stock took a hit, but it's still a great growth play for the long-term.

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Got $10,000? That’s All the Start-Up Funds You Need to Get Money for Doing Nothing 

Have you been delaying long-term investments for later? Investing money while you are working can help money work for you.

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Buy 32 Shares in This Glorious Dividend Stock and Create $1,074.88 in Passive Income

This dividend stock is also a growth stock you're going to want on your side over the next year and…

Read more »