Savings, Mortgage Rates, and Credit Unions: How Savings Can Preserve the Buying Power of Your Money in a Sourcing Economy
It gives you a clear runway to pay off your debt once and for all, as it insulates you from future rate hikes. If the economy sours, reduced debt and more savings will allow you to weather rising interest rates.
“Interest rates have increased at the fastest pace in 40 years,” said Greg McBride, chief financial analyst at Bankrate.com. “Mortgage rates have rocketed to 20-year highs, home equity lines of credit are the highest in 14 years, and car loan rates are at 11-year highs. Savers are seeing the best yields since 2008 if they are willing to shop around.
If you have been depositing money into savings accounts and certificates of deposits at the big banks that have been paying nothing in interest, don’t worry, that won’t change much, according to McBride.
According to Bankrate.com, the national average savings rate is still 0.16%, but it was up from 0.05% in January.
But all those Fed rates hikes are starting to have a more significant impact at online banks and credit unions, McBride said. They have been increasing their rates as benchmark rates went higher, and are currently offering rates that top 3%.
As for certificates of deposit, there’s been a noticeable increase in return. The average one-year credit union CD rate was 1.05% as of October 27, compared to 0.14% at the start of the year. But top-yielding one-year CDs now offer as much as 4%.
Given today’s high rates of inflation, Series I savings bonds may be attractive because they’re designed to preserve the buying power of your money. They are currently paying 6.89%.
Only if you buy an I Bond by April 23rd of next year will that rate be in place for six months. If inflation falls, the rate on the I Bond will fall, too.
Some limitations are present. You can only invest $10,000 a year. You can not redeem it in the first year. You’ll have to give up the last three months of interest on your cash out if you cash out between years two and five.
If you don’t need to touch your $10,000 for at least five years, they preserve the buying power of it. It is likely that they will be beneficial to people planning to retire in 5 to 10 years since they will serve as a safe annual investment that they can use in their first few years of retirement.
“If inflation stays sticky, you could consider putting some money into Treasury Inflation-Protected Securities, which are TIPS, and vice versa,” Ma said. TIPS are similar to Series I Bonds in that they can be sold before the term. They pay a fixed amount of interest every six months based on your adjusted principal. And that rate is fixed at auction but never falls below 0.125%. The 5-year TIPS was at an interest rate of 1.50% at the most recent auction.
Source: https://www.cnn.com/2022/11/02/success/what-rising-interest-rates-mean-credit-mortgage/index.html
What is Rising Interest Rates Mean Credit-Mortgage? What is It Like to Transfer to a Zero-Rate Balance Card?
The hike in the interest rate will have a large impact on those consumers with credit card debt who don’t pay off their balances in full.
Best advice: If you’re carrying balances on your credit cards – which typically have high variable interest rates – consider transferring them to a zero-rate balance transfer card that locks in a zero rate for between 12 and 21 months.
Just be sure to find out what, if any, fees you will have to pay (e.g., a balance transfer fee or annual fee), and what the penalties will be if you make a late payment or miss a payment during the zero-rate period. If you want to pay off most of your balance in time for the zero-rate period to come to an end, you need to pay it off on time every month. Otherwise, any remaining balance will be subject to a new interest rate that could be higher than you had before if rates continue to rise.
You can get a low rate fixed-rate personal loan if you don’t transfer to a zero-rate balance card. Currently rates on such loans range from 3% to 36%, with the average at 11.27%, according to Bankrate.com. The rate you can get depends on several factors, including your income, credit score, and debt-to-income ratio. Bankrate’s advice: To get the best deal, ask a few lenders for quotes before filling out a loan application.
Source: https://www.cnn.com/2022/11/02/success/what-rising-interest-rates-mean-credit-mortgage/index.html
What Are the Costs of Services in a Rising Interest Rate Mortgage Market? The Case for a Fixed-Rate Home Equity Line of Credit
The 30-year fixed rate mortgage averaged 7.05%, according to Freddie Mac. It is more than double what it was a year ago.
If you own bonds, the prices on those bonds will go up in a rising rate environment. If you buy short-term bonds, you can benefit from the trend, because it means one to three years. Their rates have risen and their prices have fallen. Ordinarily short- and long-term bonds move in tandem.
If you already have avariable-rate home equity line of credit, and used some of it to do a home improvements project, you might be able to fix the rate on your outstanding balance and make it a fixed-rate home equity loan.
The costs of services are one of the things to watch in terms of inflation. “The big question now is how sticky the services side of inflation proves to be. While wage pressure has likely peaked, the job market is quite strong and that could keep wage growth high for a while, Ma said.
The market seems to put geopolitics at the back of the mind, as winter looms there is a risk that the energy warfare could escalate again.
Source: https://www.cnn.com/2022/11/02/success/what-rising-interest-rates-mean-credit-mortgage/index.html
How to Invest in a Rising Rate Environment? A Comment on Ma on Value Stocks and ETFs, and How to Evaluate their Portfolios
Financial service companies can do well in a rising rate environment because they can make more money on loans. The bank’s loan volume could fall if the economy slows.
In terms of real estate, Ma said, “the sharply higher interest and mortgage rates are challenging…and that headwind could persist for a few more quarters or even longer.”
He believes that value stocks, especially smaller cap ones, have done better than expected this year. “We expect that outperformance to persist going forward on a multi-year basis,” he said.
Ma suggests that you make sure your overall portfolio is diversified. You should hedge your bets since some areas will come out ahead, but others will not.
If you are planning to invest in a stock, take into account the company’s pricing power and how well their product will sell in the market. For example, technology companies typically don’t benefit from rising rates. Doug Flynn, co- founder of Flynn Zito Capital Management, said that cloud and software service providers can raise subscription prices with inflation.
Embeddings in the New York Fed: A new opportunity for bond investors and bond investors to capitalize on high rates of interest rates and debt
“There’s a pretty good opportunity in short-term bonds, which are severely dislocated,” Flynn said. Tax-free municipal bonds can be an opportunity for those in higher income tax brackets.
Other assets that could do well are so-called floating rate instruments, which are companies that need to raise cash. The floating rate is tied to a short term benchmark rate and will go up when the Fed hikes rates.
If you are not a bond expert, you can invest in a fund that specializes in making use of rising rate environments through floating rate instruments and other bond income strategies. Flynn suggests looking at a flexible income fund or an exchange traded fund, which can hold different types of bonds.
Data released Thursday by the Federal Reserve Bank of New York shows that Americans increased their debt last year and their credit card balances went up at a faster rate than any other year.
Credit card balances increased nearly 6.6% to $986 billion during the quarter, the highest quarterly growth on record, according to New York Fed data that goes back to 1999. Credit card balances grew over the year.
Consumers are spending in the current environment because of a strong labor market, and because of high inflation and interest rates.
“It’s triple trouble for credit card borrowers,” Ted Rossman, senior industry analyst for Bankrate, said in a statement. “Balances are up, rates are up and more people are carrying credit card debt.”
While total delinquency levels remain below what was seen pre-pandemic — 2.5% of outstanding debt was in some stage of delinquency as of December versus 4.7% at the end of 2019 — the fact that delinquency rates are escalating in spite of a strong labor market environment is concerning, New York Fed researchers said.
Researchers at the New York Fed said that 18.3 million people were behind on their credit cards at the end of the last four years. At the end of the year, it was over 15 million.
If there were to be a deterioration in the labor market, that would be worrisome for consumer debt and delinquency levels, New York Fed researchers said.
“While person-level delinquencies are high, we do not anticipate widespread stress for lender portfolios as balance weighted delinquencies remain at or below pre-pandemic levels,” New York Fed researchers wrote in a blog post Thursday. “But, on a person-level, this financial distress is real, and the delinquent marks will impact their access to credit for years to come.”
Researchers noted that the ending of federal student loan payment forbearance could cause education and credit card delinquencies to rise, in addition to spilling over to auto loans as well.
A restart of student loan payments “is absolutely going to put more pressure on the consumer and force people to make touch choices,” Mike Loewengart, head of model portfolio construction at Morgan Stanley, said in an interview with CNN.