What are the best investments when interest rates are rising? Market timing is tricky at any point in time. However, there are some smart moves you can make to invest in the best stock funds and sectors in a rising interest rate environment.

When interest rates are at or near historical lows, it may be wise to prepare for when rates rise. This is often followed by a final move upward for stocks before a decline (bear market) ensues. The economy may be fairly healthy when rates begin rising. The rising rates often signal the start of the end of an economic cycle.
One balanced approach when interest rates are rising is to stay invested and take advantage of late-stage positive momentum. But you should also prepare for harder times that are lurking around the corner.
Here are 10 of the best stocks for rising interest rates. The potential options presented here are for those concerned about mitigating the impact of rising interest rates in late 2021 and into 2022.
American Financial
Property and casualty insurance company American Financial Group (AFG, $126.98) is a roughly $10 billion firm that offers protection for trucks, boats, agricultural machinery, and other assets. It also offers liability insurance, workers’ compensation, and other commercial products for small and medium-sized businesses.
Founded in 1872, this Ohio-based company has a long history of crunching the numbers to ensure its core insurance business is profitable for its shareholders.
All well-run insurers fundamentally benefit from the “float” on premiums that clients pay in before a claim is filed and that money has to go out again. In an ideal scenario, not only are these insurance companies paying out less cash in the long run than they take in. They are also enjoying a robust flow of cash that they can reinvest in low-risk assets in the meantime.
Analysts, on average, are already predicting a nice 12% rise in revenue for American Financial Group next year. And shares have handily outperformed the broader market so far in 2021 with a 44.9% return vs. about 16% for the S&P 500 Index as a whole.
A continued rise in rates could create a financial tailwind for insurance stocks and power AFG even higher.
Bank of America Corp.

Bank of America Corp., a bank and financial holding company serves banking, investing, asset management, and other management products and services to individual consumers, small and middle-market businesses, and large corporations.
It provides banking and nonbank financial services through consumer banking. Which offers credit, banking, and investment products and services to consumers and small businesses. Its global wealth and investment management segment meets clients’ needs through investment management, brokerage, banking, and retirement products. Its global banking segment handles lending-related products and services, integrated working capital management, and treasury solutions.
In Q4 2021, net income rose 28% to $7 billion, or $0.82 per diluted share, reflecting strong operating leverage as revenues grew faster than expenses, and revenue, net of interest expense, increased 10% to $22.1 billion. Average loan and lease balances were up $10 billion to $945 billion and ending balances up to $51 billion to $979 billion. It is led by strong commercial loan growth as well as higher card balances.
These stats are the only good news on the first few quarterly earnings reports for Bank of America. There’s more news ahead when the federal government puts interest rates in full swing ahead.
Ares Capital

Ares Capital (ARCC, $20.43) is a business development company or BDC. This kind of stock is a bit like a publicly-traded company that operates as a private-equity firm. This offering investors a way to pool their resources. They take advantage of targeted opportunities that ARCC thinks will deliver outsized returns.
Specifically, Ares Capital engages in acquisitions, recapitalizations, restructurings, and “rescue financing” of mid-sized companies that typically are between $20 million and $200 million in market value.
In other words, these are Goldilocks companies that are neither too small to be meaningless nor too big to be able to access capital markets in a way that an entrenched blue-chip stock could.
Plus, the company offers a best-in-class quarterly dividend of roughly 8.0% after a recent bump to 41 cents a share. A sign that this company is dedicated to sharing its success with its public stakeholders.
Adding it all up, it’s easy to see why ARCC is one of the best stocks for rising interest rates.
Capital One Financial

Diversified financial firm Capital One Financial (COF, $166.55) may be best known for its “What’s In Your Wallet?” marketing campaign for credit cards. However, this nearly $75 billion stock is much more than that, offering consumer and commercial banking services through roughly 800 branches nationwide.
Thanks to this ever-growing portfolio of loans outside of its credit card business. COF enjoys a net interest income of more than $5.5 billion every quarter going back to late 2016!
What’s more, its net interest margin – a measure of the difference between interest COF pays out and the interest payments lenders pay back into the company. It has been hovering around 6% in 2021. This is even though rates haven’t been able to consistently move higher yet this year.
Capital One’s diversified lending portfolio and a strong history of success make this company a prime target for investors looking at the best stocks for rising interest rates.
And considering COF stock is already up nearly 70% in 2021, investors can have confidence that this is a stock with the wind at its back as we close out the year and look ahead to 2022.
Discover Financial Services

Discover Financial Services (DFS, $126.98) was thought of as an also-ran in the credit-card game by some when it was founded in the 1960s. But the company is now a nearly $40 billion consumer lending powerhouse that stands shoulder to shoulder with peers like Visa (V) and American Express (AXP).
DFS is accepted at nearly 50 million locations, tallied some $420 billion in payment volumes last year – and continues to grow in 2021 on top of that.
Discover is a natural beneficiary of a rising rate environment as it can also increase the rate it charges for outstanding balances. But it’s also good for the growing lending arms at DFS outside of its credit card business. Right now, Discover has about $10 billion in student loans and another $7 billion in personal consumer loans.
With projected revenue expansion of 9% this fiscal year, better margins should help Discover accelerate its growth in 2022 if and when higher rates materialize. That’s saying something, considering the stock is already up 40% for the year-to-date.
And after a nearly 14% boost in its quarterly dividend in July. DFS now offers a decent 1.6% yield as a sweetener for those looking at the best stocks for rising interest rates.
Equifax

Credit data and analytics provider Equifax (EFX, $256.55) is one of the three national credit bureaus that are effectively gatekeepers on nearly all consumer lending. And in a rising rate environment where loans are going to cost a bit more. Consumers are eager to get their scores as high as possible to secure the best deal. EFX is very likely to see an uptick in demand for its services.
Additionally, in the last year or so, EFX has made a series of small but important acquisitions to widen its moat further in the lending and financial services space.
All in all, the firm has notched eight acquisitions for about $3 billion so far in 2021. A few noteworthy deals in this group are background check firm Appriss Insights, banking analytics firm AccountScore, and fraud prevention firm Kount.
EFX is already on track to grow revenue at about 17% this fiscal year. A rising rate environment coupled with these business-building acquisitions should help out this stock going forward.
Equifax is putting in an impressive showing on the charts this year, too, up about 33% so far – roughly double the S&P 500 in the same period.
Morgan Stanley
An iconic name in asset management, Morgan Stanley (MS, $99.55) is a great stock to consider for a rising interest-rate environment for a number of reasons. Most obviously, the financial stock has more than $1.1 trillion in total assets under its belt. A modest rise in rates means it can put idle cash to better use in low-risk bond investments.
It’s also important to note that a rising rate environment also will create a bit more volatility in capital markets as Wall Street reshuffles its priorities. That is normally a good thing for elite firms like MS, both because it provides opportunities for its shrewd managers to cash in. It’s because many high-net-worth investors tend to start shopping around for firms like Morgan Stanley that can help them get ahead.
With roughly 9% revenue growth projected this fiscal year, things are already looking up. Plus, after the recent announcement that it would double its dividend and plow $12 billion into a stock repurchase plan, it’s clear that MS is committed to sharing its success with shareholders going forward.
PacWest Bancorp

PacWest Bancorp (PACW, $45.97) is a $5 billion regional bank that operates roughly 70 full-service branches, located mainly in California. This is a real bread-and-butter financial stock, offering various products and services such as auto loans, mortgages, savings accounts, and ATMs.
It’s not particularly sexy, but this kind of banking activity is the lifeblood of local economies. And as the U.S. economy gets back on its feet, these services are increasingly in demand. Therefore, a rising rate environment will give PACW a further shot in the arm as its net interest margins on car, home, and business loans improve in kind.
As proof that PacWest has come roaring back with a vengeance in 2021, consider its earnings per share should finish the year at more than double 2020 levels. And as investors cheer this improvement in the bottom line, they’ve bid up shares a stunning 170% over the past 12 months.
PACW is now back to its highest levels since 2018 thanks to continued operational improvements. The potential benefits of a rising interest-rate environment could mean new highs for this regional banking stock in 2022.