Save like a boomer: Younger generations have a chance to make high interest rates work for them

• Now is a great time to use the investment strategy often suggested to older Americans.
• Interest rates on traditionally "safer" investments like Treasury bonds are high.

With their $75 trillion nest egg, baby boomers are getting the last laugh in the struggling US economy, and now is the time for younger generations with some extra cash to use one of their classic investment strategies.

While today's high interest rates are terrible for young people who want to buy a house or car, or use a credit card, they are a boon for older generations due to the types of investments they tend to make.

Typically, as people age, they are advised to put less of their money in higher-upside investments that come with more risk, like the stock market, and instead purchase safer assets such as CDs and Treasury bonds.

While "safer" investments often have lower returns, yields on US government Treasury bonds recently reached the highest level since 2007. So older Americans who, in the past, would have had to sacrifice higher returns for safer investments can now get both.

A 2022 Bankrate survey showed that older generations were still more likely to be interested in bonds as an investment, although the gap was narrowing.

Economist Thomas Hogan of the American Institute for Economic Research recently pointed out this upside to the interest rates and how it is helping Americans.

"For decades, low interest rates have made it hard for retirees or anyone who wanted to put their money in safe, long-term investments like bonds," Hogan said. "Now, interest rates on US Treasury bonds are at the highest in more than a decade, giving savers a safe, stable place to store their money."

While there is some debate over whether the Fed will have another rate hike this year after pausing in September, most experts agree that we are likely headed down a higher-for-longer path that would keep rates elevated well into 2024.

LPL Financial is now forecasting treasury yields will also stay higher for longer, but their forecast suggests the rates have already hit a plateau. With the current rate on the 10-year Treasury at 4.7%, they predict it will end the year between 4.25% and 4.75%.

Signs that bond rates will soon drop

If the treasury yields have plateaued, now is the time to get in because they could soon start to reverse.

In a recent note, strategists led by Tim Hayes, the chief global investment strategist at NDR, noted that there is now more pessimism in bonds than the stock market since the start of the war in Israel.

"The bond price rebound in response to the Middle East conflict may be a sign that the sentiment reversal is underway, with yields heading lower and stock prices higher," the strategists said.

If that trend continues, it could lead to a stock market rally and signal that investors believe bond yields are no longer climbing.

Of course, not everybody can afford to save right now.

Pandemic-era savings are running dry with record levels of credit card debt, student loan payments are resuming, and we are about to hit the window for the delayed impact of higher interest rates.

But the good news for the US is that if more people do start taking advantage of these higher interest rates by saving more, it could help slow down the economy with less spending and potentially lower inflation. Dallas Fed President Lorie Logan recently made this point while discussing whether the Fed would need to raise rates again.

"Financial conditions have tightened notably in recent months," Logan said. "But the reasons for the tightening matter. If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate. However, to the extent that strength in the economy is behind the increase in long-term interest rates, the FOMC may need to do more."