Monthly Archives: January 2017

How Will Rising Interest Rate Projections Affect Consumers?

finance blogAs anyone with a bank account and/or any kind of debt – a car loan, mortgage, credit card balances, etc. – can attest, the interest rates that affect us, the retail financial consumer, are driven by the Federal Reserve’s monetary policy decisions.

A Brief Finance Lesson

Most consumer interest rates are driven by the federal funds rate – the interest rate considered the central interest rate in the U.S. financial markets. This is the interest rate that major banks use when borrowing or lending funds through the central Federal Reserve banks. The fund rate is set by the Federal Open Market Committee (FOMC), the policy-making arm of the Fed.

The St. Louis Federal Reserve, one of the 12 member banks of the Federal Reserve System, apportions the impact of the fed funds rate. This interest rate influences the prime rate – the rate offered to the bank’s customers with the highest credit ratings.

Since 2008, interest rates have remained historically low. For the consumer, this has been a double-edged sword – very attractive borrowing rates coupled with negligible investment rates (e.g. Savings and CD rates).

However, events of the last quarter of 2016 indicate there will be upward pressure on interest rates on the horizon, both short-term and long-term.

In the last quarter, the economy began showing signs of strength. With the election of Donald Trump, businesses seem optimistic over their growth opportunities. In addition, the stock market has soared to record highs and bond yields took their first big fall, the unemployment rate holds steady, and job growth continues as household spending slowly improves. These indicators, and stirring inflation, prompted the FOMC to hike the interest rate on December 14.

Is this the beginning of the end…of historically low interest rates, that is? Financial analysts seem to think so, and expect we will witness creeping interest rates over the coming year.

What Will this Mean for Consumer?

Low rates have been painful for retirees who seek a decent return on their emergency funds and cash investments. Consequently, an increase in the fed funds rate will improve the rate on these investments.  However, most analysts’ projections for these rates are cautious, indicating that consumers shouldn’t expect to get rich on savings account and CD rates in the near future.

The housing market has enjoyed the benefits of mortgage interest rates in the range of 3 to 5 percent since 2010. The forecast for these rates suggests that the rise in the fed funds rate, in addition to the yields on treasury bonds, will prompt higher borrowing costs for consumers. Mortgage rates have already pushed to their highest levels since July 2015.

Even an incremental increase on the interest rate of a large loan balance can cause a significant increase in monthly debt payments. Consequently, with increasing mortgage rates likely on the horizon, now may be a good time to refinance, especially if you have an adjustable rate loan, or buy, if you’re in the market. This suggestion applies to auto loans as well.

Financial analysts are also predicting that consumers will see higher interest rates on credit cards and variable rate loans, such as student loans. Typically, variable rate loans adjust once a year. But, credit card APRs can be increased any time. If you have a variable rate student loan, now may be the time to refinance into a fixed rate. There are many companies who offer fixed rate student loan refinancing and consolidation with terms ranging from 5 to 20 years. If you have credit card debt, you should set a plan in motion to pay down the balances as quickly as possible. If you have the opportunity to transfer to another card that has zero interest balance transfer for 12 months or longer, now would be a good time to accept that offer.

The investor can expect to see stocks and stock funds perform well if the interest rates are rising as a result of a growing economy. However, if inflation becomes a problem, it could have a negative effect on some stocks. Investors who own bonds can expect to see their value decrease as yields increase. But, this shouldn’t present a problem if the investor plans to hold the bond until maturity.

A Sound Strategy

 No one knows where interest rates will land in the future. But, current low rates are unlikely to continue. The FOMC expects that economic conditions will evolve in a manner warranting gradual increases in the federal funds rate.

With this said, savers will benefit from the Fed Funds rate increase and should look to maximize the returns on their cash by securing the best savings rates… as long as the institution is insured by the FDIC or NCUA. Borrowers should maintain strong credit profiles. If you have credit issues, take steps to improve your credit score now to receive the best borrowing rates in the future. And if you’re in the market for credit, act sooner than later.

 

 

 

 

 

 

 

 

 

 

There’s An App for That

cardvaletToday, there’s pretty much an app for anything. There’s an app for turning the lights on in your home before you arrive and turning them off after you leave. There’s an app for measuring your daily physical activity, the calories you’ve burned as well as monitoring your vitals. There’s even an app to make purchases without ever opening your wallet. Apps are developed to entertain, provide added convenience, and even, like the one below, diminish our ever-increasing vulnerability to fraud.

CardValet®.

CardValet, an app recently developed by Fiserv, a technology solutions provider to the financial world, is a debit card management and fraud mitigation tool that enables cardholders to control when, where and how their debit cards are used. A turnkey mobile app, CardValet gives the debit cardholder significant awareness of and control over how and when their card is utilized.

This innovative financial app, increasingly promoted by more and more financial institutions, lets cardholders turn their cards on and off, set spending limits as well as monitor and receive alters on transactions.

CardValet gives debit cardholders the ability to turn their cards off immediately if their card has been lost or stolen or if they detect unauthorized transactions on their card. When the card is turned off, no withdrawals or purchases will be approved. Then, after the fraud threat is eliminated, the cardholder can turn the card back on immediately.

With CardValet, the cardholder also has the option to receive text alerts every time the card is used. These real-time alerts keep the cardholder informed when his or her card is being used or has been declined.

In addition, the app can work with the GPS system in your smartphone and geographic restrictions can be established on your debit card. These transaction controls allow your debit card to work only in specific locations or geographical areas, adding another layer of protection against fraud.

The CardValet can also help you stick to your budget. Let’s face it, the increasing use of plastic over paper has made overspending easy. With this app, you can take control of your finances by setting spending thresholds on your card. You can set spending limits for general use or specify thresholds by merchant types, such as gas, groceries or retail stores. The flexible app lets you change these parameters at anytime…you simply update your transaction controls to fit your spending needs.

The CardValet also allows you to set parental controls on your child’s card. Whether your kids are shopping at the local mall or they’re away at college, you can manage their spending. With the same convenient features that help you stick to your budget, this app lets you decide where, when and how your children can use their debit cards.

For more information concerning this app – how it can help you manage your money with greater ease and confidence than ever before, please stop by and talk with a member of our team. We’ll be happy to answer all of your questions and help you get “the app for that.”