Transcription
It's official. Interest rates are going to stay higher for longer. And while most people are upset they're not going to be able to finance their mortgage, it's going to make some people a lot of money.
Right now, the average savings account pays 0.4% a year in interest. At the same time, inflation is right around 4%, which means the average person working hard to save money is slowly becoming poorer because the prices of things, that's what inflation is, is growing 10 times faster than your savings. That means the $100 you have in your savings account is going to buy you less stuff 12 months from now than it can today.
This is where things could be shifting in our economy because for the last 15 years, saving your money like this has been a punishment because your savings rate has been lower than the inflation rate, which means the average saver has been getting poorer. Well, things started to change after the pandemic because we saw such high inflation in 2020, 2021, 2022. We all remember that, right? And in response, something had to be done. So in 2022, we saw interest rates go up as a way to fight inflation and they went up to the highest levels we have seen in 15 years.
But then things changed again in 2025 when President Trump entered the White House because he promised that we are going to see extremely low interest rates again. That's good news if you want to borrow money, but not so good news if you want to save your money. So in 2020, interest rates went down to stimulate the economy because of the pandemic. In 2022, interest rates went back up in order to fight the inflation because of the pandemic money printing. Then in 2024, 2025, interest rates went down to stimulate the economy. And now here we are in 2026 and the Federal Reserve Bank is hinting that we might see higher interest rates for longer. And we might even see interest rates go up in 2026.
That's why in this video I'm going to do something a little bit different that I don't actually talk about very often on this channel, which is how you can use higher interest rates to generate interest on your savings. I'm not talking about using a savings account or anything like that, but I can actually generate more interest in an environment where interest rates are higher for longer. So, let me break this down.
By the way, I'm going to go over some specific investment examples. I'm not here to tell you what to invest in. I'm not a financial adviser. I'm just a random guy on YouTube. Investing has risks. You are never guaranteed to make money when you invest. In fact, you will lose money at some point. So, make sure you always do your own due diligence and never blindly trust a random guy on YouTube. I'm going to break this video up into five different investment categories.
But before I do, final reminder. Today, July 8th, I'm in downtown Manhattan doing a free meet and greet. If you are around at 5:00 p.m. in downtown Manhattan on July 8th, I invite you to join me if you'd like to join and see where it is. I have a link to a short Google form that you can complete so we can tell you where the location is down in the description below.
But just so we're on the same page, let me make sure you understand the difference between a bond and an equity. An equity is the fancy way of saying a stock. And when you buy a stock, what you're actually buying is ownership in a company. So if we talk about the Apple stock, and it doesn't matter which company we're talking about, Apple is broken up into millions of little pieces called shares. So when you buy one share of Apple, you become one of the owners of Apple. Now, as the owners of Apple, you get a share of profits. There's no limit to how much money you can earn, but you can also lose all of your money. That's how equities work. You're investing in a stock, which means you get a piece of ownership in the company and you are working for profit. That is the key thing that you're trying to get is that as a stockholder, meaning as equity holder, you are getting your share of the profit.
A bond is different where bonds are loans. The same company Apple also works to raise money by getting debt. They might go out and say, "We need to raise a billion dollars of debt. That way, we can go out and build this new iPhone that we want to create." Well, if you wanted to lend money to Apple, you can also do that by buying some of Apple's bonds. And in exchange, now you're not going to get the profits because you're not an owner of the company. You're going to be a lender to Apple. And so in this instance, you are working for interest. And so this is a little bit different because there is a set payment amount. It might be 5% in interest a year. Now, if Apple goes out and sells millions and millions of these phones and makes billions and billions of dollars, the most you're going to make as a bondholder is that 5% a year. But this is where things get interesting. If Apple loses money, you still have to get paid because as a bondholder, you have a contract where Apple has to pay you that 5% a year. If they don't pay you, then they go bankrupt. So, here as a bond investor, it's less risk for less return because now you're working to generate interest on your money and you were the first person to get paid because Apple has a contract that says they have to pay you first on the interest that you agreed to.
Here, as an equity holder, when you buy stocks, it's different. where now you're working to be an owner in the company. You're sharing in the risk of the company. If Apple makes a lot of money, you make a lot of money. If Apple loses money, you lose money and you only get paid now if the company is actually making money.
For this video, because we're talking about interest, we're going to be focusing here on the bond side with number one, the most obvious. We'll talk about lending your money to the United States government through United States Treasuries.
Let's start with number one, lending your money to the United States government. Here's how the government's finances work. The United States government has one source of revenue. It is tax dollars from taxpayers. And in 2026, the government is going to collect something like $5 trillion in taxes. The problem is the government does not have a balanced financial sheet, which means it doesn't spend $5 trillion or $4 trillion. In fact, in 2026, it's going to go out and spend something like $7 trillion, which means there is a $2 trillion gap. And where is the government going to fund that $2 trillion gap? Well, they're not raising your taxes because President Trump signed the biggest tax cut bill in history in 2025 called the One Big Beautiful Bill Act. Instead, what the government does is they go out and they borrow this money. And this is where you can be one of the people that lends money to the United States government and in exchange you're going to get paid back with interest.
Now the thing that you want to understand about this is that this is called a treasury. Lending money to the government is called a treasury. And every economics textbook will tell you that this lending money to the government is the safest investment that you can make. Why? Because the government can just raise people's taxes. It's the strongest economy in the world. So the government will always have the ability to pay their bills. Also, if the government doesn't want to raise taxes, they can work with their central bank called the Federal Reserve Bank to just get that money printed and pay you back. That's why it's called the risk-free investment because it is a safe investment because if the government did not pay back that debt, the entire economic system, not in the United States, the entire global economic system would collapse. That's why the government has to keep paying back this debt.
Now, because it is not a very risky investment, the returns aren't the best either. Remember, higher risk, higher potential return. Lower risk, lower potential return. So, what you can do now is go directly to the government website called Treasury Direct, and you can lend money to the government for a certain period of time, one year, 2 years, 5 years, 30 years. But that can be a little bit complicated to do that. Instead, a simpler way to do that, again, I can't tell you what to do, but a simpler way to get the returns without actually giving the money directly to the government, is to use an ETF on the stock market that's giving you exposure to short-term treasuries. For example, SGOV is an ETF that gives you exposure to short-term treasuries. At the time of recording this video, SGOV is paying an interest rate a little bit under 4% a year. Or example number two is USFR. This is another ETF that's going to give you exposure to these treasuries, it's also paying a little bit under 4% a year. And here, if the Federal Reserve Bank raises interest rates, the interest rate that you're going to get is also going to go up.
Now, here's where things get a little bit interesting. When you're investing in these ETFs, the ETFs don't actually move in price besides when the interest is paid. Like with SGOV, the interest is paid every single month. So, you'll see the ETF go up and down every single month just when the interest is paid. Again, these ETFs are backed by the United States Treasury. So, the risk is that the government defaults, which would be a big problem globally, or another risk is one of these ETF creators also fails. It's not FDIC insured because it's not a bank. But the risk here is that the government fails.
But there is one more benefit to these type of US Treasury ETFs. They're paying a little bit under 4% a year, but you don't have to worry about state or local taxes. So, for those of you that live in states with high state taxes, California, New York, when you earn money, you have to pay your state taxes. And if you're a high-income earner, you might even have higher state taxes. Well, here you can earn steady interest on your money. And you don't have to worry about paying state or local taxes because treasuries are exempt from state or local taxes. And I can tell you this as a licensed attorney who is not your attorney. But that's one of the benefits here compared to a high-yield savings account.
The second way that you can generate interest on your money is by lending your money to a foreign country. Now, when you hear that, that's going to sound very risky and very scary, but this is where there are ways to mitigate some of your risk. Because there are some countries around the world that are essentially protected by the United States. And not just that, their currency is also protected by the United States dollar because their currencies are pegged to the United States dollar. So, they're protected by the United States. Their currencies are protected by the United States dollar, but because it's a foreign country, they're generally paying higher interest rates than the United States. So, this can create the opportunity for you to get a little bit higher interest rate returns without having to take on a whole lot of other risk.
Let me give you an example. Saudi Arabia, the UAE, and Qatar. These three countries are pretty close allies with the United States and are protected militarily often by the United States. But not just that, their currencies are also pegged to the United States dollar, which means they have the currency of protection as well. So you can lend money to countries like these because their countries also need to borrow money. And now you're protected with the back of the United States dollar and the United States Treasury, but they're often paying higher interest rates, which means you can get a better return on your money. Now, of course, there's more risk there because it's not the United States, but you're mitigating some of the risk because of the protection of the United States.
Now, here's the thing. You can go and individually lend your money to one of these countries directly. It's more work. You generally need more money. There's no easy direct way to do that in the stock market. But there are funds that are going to give you broader exposure to different countries, including the ones that I just talked about, and some not protected by the United States. But these funds can generally pay out higher returns, but they come with some higher risk. Let me go over a few examples. Number one is EMB. This is an ETF created by iShares, and this is giving exposure to their USD emerging markets bond. With this ETF, you're investing in loans that are United States dollar denominated to foreign countries. At the time of recording this video, EMB is paying around 5% a year in interest. And just so you know, this does have volatility in the fund price. So you will see the fund go up and down in price as well. Another example, a little bit more risky, a little more broad, would be PCY. This is giving you exposure to the Invesco emerging market sovereign debt bond. Again, this is giving you exposure to foreign economies that are dollar denominated and lending money there, working to generate interest, but you are going to see volatility in the price of the fund.
This brings me to the third way that you can get interest on your money which would benefit if interest rates go up which is directly lending your money to big companies in the United States. Now, I do want to let you know that I have a full master class where I go over how you can start investing in this changing economy that we're seeing right now because I call it a perfect storm that we're going through with changes in our economy and the dollar and the Federal Reserve Bank. If you want to watch the master class for free, I have that link for you down in the description below. And when you sign up for it, you're also going to get access to market briefs, which is my newsletter for investors, completely free. So, if you want to watch that, I have that link for you down in the description.
In the beginning of this video, I talked about Apple and how you could go out and invest in the Apple company, where now you are going to share in the profits and also take on the risk if Apple goes down. The other way that you can invest in Apple is by investing in Apple bonds, which is you're lending money to the Apple company. Now, still, Apple could go bankrupt and you're not going to get paid back, but you as a bondholder get paid before the equity holder because Apple has a contract to pay you back. It does not have a contract to pay back their shareholders. There's still risk, but less risk as somebody who is investing in the bonds. Less risk comes with less potential return because if Apple makes a whole lot of money, you're limited by whatever your interest rate is. But you get the idea.
Now, now you can go out and invest in individual companies, which is more work. But in this video, I'm going to focus in on the ETF side of how I can get exposure to corporate bonds, which would be a basket of different companies and working to generate interest from them because if interest rates go up, well, there could be a way to generate some more yield as well. Example number one is LQD. This is an ETF that's created by iShares that's giving exposure to investment-grade corporate bonds. This is companies like Microsoft, Apple, the big banks that are working to borrow money. Now, just so you know, you can buy and sell your way out of these ETFs whenever you want. But this ETF particularly is working to invest in more longer-term loans. And because you see that, you'll generally see more price movement up and down with that ETF. So, you'll see more volatility here. At the time of recording this video, LQD is paying out between four to 5% a year in interest.
Then example number two is VCSH. This is an ETF created by Vanguard which is working to give you exposure to short-term corporate bonds. Now, what you see is that because this is giving exposure to more of the short-term bonds, you're going to see less volatility in the price of the ETF. Again, you can buy and sell it anytime that you want, but you're going to see more of a steady price of the ETF generally, not always. That's the goal here. This is also going to pay you between four to 5% a year in interest at the time of me recording this video.
Then we have option number four, which is investing in junk. Now, when I say junk, I'm not talking about garbage, per se. I'm talking about junk bonds. And junk bonds is a kind of a way to refer to high-risk bonds. These are companies or things that are likely or more likely to default. Now, you might say, "Well, Dusp, why the heck would anybody want to invest in these type of junk bonds?" Well, the reason why some people like these junk investments, junk bond investments, is because they pay out higher rates of returns. There's a chance you won't get paid. There's a chance you will get paid. If you do get paid, you're getting a higher rate of return to justify the added risk. So, for some people, they like it. For other people, they hate that idea. So, if you wanted an interest investment that could pay you a higher rate of interest that comes with higher risk, and you understand the risk of a junk investment, let me go over a couple examples.
Number one is HYG. This is an ETF created by iShares. This is going to give you exposure to high-yield corporate bonds. This is the biggest junk bond fund and at the time of recording this video is paying a little bit under 6% in interest a year. Option number two is JNK, short for junk. This an ETF created by Spider, SPDR. This giving exposure again to high-yield bonds. This is another big one giving exposure to junk bonds. Again, higher rates of interest. Someone's paying a little bit more than 6% a year in interest at the time I'm recording this video. Higher returns which come with a lot more risk.
Now the last piece of information that I should tell you about junk bonds is that people like investing in junk bonds during times that they believe is a booming economy because during a booming economy companies are less likely to go bankrupt. So they like junk bonds then because during a booming economy there's less chances of them going bankrupt and you're getting those higher rates of return. But as soon as the economy turns down, those companies that are higher risk generally go bankrupt first and then those junk bonds tend to lose first. So just understand the way that that investment system works.
And then we have number five, the tax-free bonds. This is especially for those of you that are higher income earners that are making a lot of money and pay a lot of money in taxes and you were wondering, is there a way for me to generate interest and not have to pay any taxes? With example number one, US treasuries, we talked about how these bonds, you don't have to pay state or local taxes, which is good for people that are making a lot of money in high tax states. But for those of you that are not necessarily in a high tax state, you just don't want to worry about federal taxes, which can be extremely high. I mean, the top tax rate is 37%, you're making a lot of money, you want to make some extra interest. Well, that's where these tax-free bonds come into play.
Now, this would be generally investing in things like municipal bonds, which means more local bonds as opposed to the federal government. Again, this is more of a less risky investment. It's not as safe as the United States government because the government, if that were to default, you'd see a crisis globally, but states and cities also don't go bankrupt very often. I mean, we did see the city of Detroit go bankrupt. We all remember that. I mean, if you're from Detroit, you know that. But cities and states don't go bankrupt very often. So, it is still a very safe investment, but it allows you to bypass and not pay any federal taxes on the interest and you might be able to bypass the state interest as well depending on where you live. The state is dependent on where you live. Different places have different rules, but you don't have to pay any federal taxes.
Let me go over a couple examples. Number one is VTEB. This is an ETF created by Vanguard giving exposure to the tax-exempt bonds. At the time I'm recording this video, it is paying around 3.3% a year in interest, which again is tax-free on the federal level. Example number two is MUB. This is another ETF. This time is created by iShares, giving exposure again to municipal bonds. At the time of recording this video, is paying just over 3% a year in interest. Again, tax-free.
So now if you are a high-income earner, you can factor in how much are these taxes worth and see if it would be more valuable, more waiting here generating money at this free rate of interest versus not. To put it into perspective, if you have an extra million laying around and you put that in a high-yield savings account paying 3% a year in interest, that's $30,000 in interest you're going to make, which sounds good. But if your top tax rate is 37%, well now a third of the $30,000, about $10,000, is going to go directly to taxes. In this case, you're getting about the 3% a year again, but you get to keep that $10,000 that would have gone to the government in taxes. So the more money you have, the more valuable this can be.
Investing your money is hard, and on this channel, I teach how you can start investing your money yourself. But for some of you, working with a financial advisor, somebody who is a professional will be a better option because now it's more hands-off and you can work with a professional who will manage and invest your money for you. And that's why I partnered with my sponsor, Money Pickle. The reason why I like Money Pickle is because first they get to know you and what your needs are and then they match you with a vetted financial advisor who would be best suited for your needs and then they give you a free consultation call with the financial advisor. That way you can get a feel of the financial advisor and see if they're right for you or not. That way you don't have to go through a high-pressure sales process with somebody who might not even be a good fit for you.
If you're interested in learning more and you have over $100,000 in assets, the process is pretty simple. All you have to do is complete a short form. I have that link for you down in the description. It takes a few minutes to complete and once you do that, Money Pickle will review your answers and then pair you with a vetted financial advisor who they believe is best suited for you. It's a completely free process. That initial consultation again is free and then if you decide to move forward, then you can negotiate and discuss what your rates and terms look like with that financial advisor directly. So, if you want help managing your money and you want to work with a vetted financial advisor, my sponsor, Money Pickle, can help get you paired up with a financial advisor at no additional cost. So, if you want to learn more, I have that link for you down in the description.
What we talked about in this video is that we could be seeing higher interest rates for longer. Again, we don't know what's going to happen in the future, but this is based off of what we know today. If we see those higher interest rates, well, then interest investments could win as a result. In this video, I went over five different ways that you can invest your money for interest. Some more riskier than others. Again, I'm not here to tell you what to invest in, but I want you to understand what the different options are so you can be a smarter investor.
Option number one is lending your money to the United States government through the stock market. We talked about SGOV and USFRs. Two ways to get exposure to US treasuries. A low-risk option as a way to generate interest where you don't have to worry about state or local taxes.
Option number two is investing in countries that are protected by the US. United States denominated bonds and in this place it is more risk for more potential return. We talked about EMB, PCY.
Then we tied up investing in big companies, big corporate bonds. Now you're not owning the company, you're just lending money to the company in exchange for interest. The idea being if interest rates go up, they're going to have to pay more interest on those loans. We're talking about LQD, VCSH.
Then we talked about junk investments. The high-risk option for those of you that believe the economy is going to boom and these junk investments are not going to fail. Well, a couple examples for you. Risktakers are HYG and JNK.
Then we talked about the tax-free option for municipal bonds where you don't have to worry about federal taxes. That way, if you are a high-income earner, you have a lot of money and you want to just generate some interest tax-free, here are a couple options for you. VTEB, MUB.
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The United States government is approaching $40 trillion of national debt. And while most people are worried about how much money the government is spending, there's a quiet shift happening with our money that most people are completely missing. I'll show you. In the past, when the United States government would spend money it didn't have, it would borrow money from countries.