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Feds Meet Without Increasing Interest Rates + How a Rate Hike Can Effect Your Pocket

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The Federal Reserve concluded its two-day policy meeting without increasing interest rates, although it’s expected the central bankers will lift rates before year-end. Thus far, the Fed has raised interest rates three times this year due to economic growth and inflation. The last increase set the target for the benchmark federal funds rate at 2% to 2.25%. But what does an interest rate hike mean for your pockets? According to MotleyFool.com here are 6 Ways a Fed Rate Hike Can Effect Your Wallet:

1. Get ready for higher rates on savings accounts

As the Federal Reserve increases interest rates, banks may feel compelled to pay a higher interest rate on your savings and checking accounts. Many regional and online banks are now paying close to 2% on cash kept in a savings account, while others are paying 3% or more on five-year certificates of deposit. As interest rates rise, the most competitive banks will increase the interest rates they pay to savers every time the Fed acts.

Of course, whether or not your personal bank will increase your interest rate depends on how hungry it is for deposits. One of the best indicators that a bank may choose to increase the rate it pays for deposits is its loan-to-deposit ratio, which divides its loans outstanding by the deposits its customers entrust with the institution. The higher the ratio, the more likely a bank will have to compete for deposits by increasing rates paid to its customers.

2. Your credit card debt will become more costly

While the Federal Reserve increases rates by increasing the federal funds rate, the increases affect other lending benchmarks, such as the prime rate, too. In the last three years, the prime rate has increased by 1.5 percentage points, while the effective federal funds rate increased by about 1.6 percentage points. The relationship between the prime rate and the effective federal funds rate can be a big deal for credit card users, particularly those who carry a balance.

If you look carefully at the terms and conditions of your credit card, you’ll likely find that the rate charged on your balance is calculated by adding a premium on top of the prime rate. Thus if your card charged an APR equal to Prime plus 10.5%, it would currently carry an APR of 15.25%, based on the current prime rate of 4.75%. That’s roughly in line with the last reported national average of 15.3%. Of course, if you pay your balance in full every month, as you should, the rate you pay on your credit card is irrelevant. Credit cards only charge interest when you carry a balance from month to month.

3. Auto buyers should expect higher APRs

One thing you should know about the Federal funds rate is that it is a super short-term (overnight) interest rate. Thus, when the Federal Reserve votes to increase interest rates, it has the greatest impact on short-term loans such as car loans, which are typically paid off over the course of 48 to 72 months.

Data from the Federal Reserve shows that the finance rate on 60-month auto loans has increased from 4.05% in November 2017 to 4.75% in February 2018, driven in part by the Fed’s decision to raise the benchmark rate. The good news, though, is that many auto manufacturers still offer 0% APRs to buyers with excellent credit. Plus, higher rates have a much smaller impact on affordability for short-term loans like car loans than they do to longer-term loans like mortgages. The difference between paying 4% or 5% interest on a five-year, $30,000 auto loan amounts to only $14 a month, which is a rounding error on a payment in excess of $500 per month.

4. Your insurance premiums could fall

It’s smart to shop around for auto or homeowners insurance frequently to get the lowest premiums, advice that is especially true in a rising-rate environment. Because insurance is prepaid, (premiums are paid before coverage kicks in), insurers are able to invest the money and earn a small amount of interest due to the lag in when they receive cash from customers and when they pay out cash for claims.

The insurance industry is extremely competitive, and insurers price insurance policies partly based on how much they can earn investing the premiums they take in from every contract. When rates are high, insurance companies can afford to charge less for the same coverage, since they anticipate making more money by investing the premiums for short periods of time. Of course, you shouldn’t expect that your car insurer will lower your rate just because interest rates are rising. Shop around, and if you find a lower quote, ask your existing insurer to match the premium, or be prepared to change companies altogether.

5. College financing costs rise

Current undergraduate students will see a higher interest rate on government student loans for the 2018 and 2019 school year. In the upcoming year, interest rates will rise to 5.05%, up from 4.45% during the 2017 to 2018 school year. Luckily, Stafford loans for school carry a fixed interest rate, so the rate increase only affects new borrowings, not existing loans.

Rates for federal student loans are set by Congress. The rate is based on how much it costs the government to borrow money for a 10-year term. Thus, when rates on the 10-year U.S. Treasury note increase, so do rates on government student loans. As the Fed has increased short-term interest rates, investors are demanding a higher rate from longer-term U.S. government notes, and federal student loan rates are rising in response.

6. Your mortgage payment may swell

Homeowners who have variable rate mortgages are likely to see their monthly mortgage payments increase with each increase in the Federal funds rate. That’s because variable rate mortgages are typically based on a short-term interest benchmark, such as the Prime rate or LIBOR. Both the Prime rate and LIBOR increase almost 1-for-1 when the Federal Reserve decides to increase interest rates, affecting anyone who has an adjustable-rate mortgage.

Luckily, people who have a fixed-rate mortgage won’t see their interest rates increase, and new homebuyers may just find that higher overnight rates have little impact on long-term 30-year fixed mortgages. Note that while the Federal funds rate increased by about 1.6 percentage points since the fall of 2015, rates on 30-year mortgages have increased only about 0.7 percentage points. That’s because mortgage rates are influenced more by long-term interest rates and the demand for mortgage-backed securities (packages of mortgages that are sold to investors). Fixed mortgage rates are affected indirectly by Fed policy.

Ash Exantus aka Ash Cash is one of the nation’s top personal finance experts. Dubbed as the Financial Motivator, he uses a culturally responsive approach in teaching financial literacy. He is the Head of Financial Education at BankMobile and Editor-in-Chief at Paradigm Money. The views and opinions expressed are those of Ash Cash and not the views of BankMobile and/or its affiliates.

The Daily Digm (News)

T-Mobile’s Dream of Telecommunications Domination Gets the OK + How to Create Mental Toughness While Pursuing Your Dreams

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T-Mobile’s $26 billion takeover of Sprint finally got approved by a federal judge, a move that will leave most wireless consumers with three major operators to choose from, including Verizon and AT&T. More than a dozen attorneys general had sued to block the merger that had already been approved by the Justice Department and Federal Communications Commission. The administration has required T-Mobile and Sprint to sell some units to pay-TV operator Dish Network as part of the deal.

Dream chasing isn’t for the faint at heart. It can take years before one sees the financial payoff of what was once an idea. T-Mobile is probably patient on the outside, but internal it is jumping for joy. It took them a few years to get to this point, but I’m sure they will be relieved at the fruits of their patients.

When building a business, your goal has to be more than money, or you will ultimately fail. Your drive has to be based on principle, change, and something greater than yourself. Here is how to stay mentally tough while pursuing your dreams.

Personal Development. The road to success is paved with character and growth. Personal development is one of the key drivers that sustain you on the path of your dreams. Trustworthiness, keeping your word, and dependability are imperative to any industry. It doesn’t matter if you’re a musician or painter, lawyer or doctor, these traits and non-negotiable and forever transferable to success.

Take Breaks. To get there, you must rest one mile at a time. The grind is overrated. Reflecting on how far you’ve come energizes you for the road ahead. Burnout is a danger to your accomplishments and leads to a failure by default.

Stay Hungry. Stay Foolish. Steve Jobs popularized this quote from an ad in The Whole Earth Catalog. It read Stay Hungry. Stay Foolish. We come to a point when we are happy with a level of progress and think we’ve learned everything. Accepting the truth that we never stop growing, and there is no limit to our success gives us the ability to keep going. To continue, you must never settle. You must always seek new ways of fixing things and solving problems. Discover new opportunities and be open to learning more.

Faith. Steve Jobs also mentioned faith throughout his journey. Believing so deeply in an idea that you make it come to life. Belief takes ideas and materializes them; and when you realize you can actually make something come to life, the sky becomes your launching pad, not the limit.

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Amazon Plans to Add 15,000 Jobs + How to Prepare for the Job You Want

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Amazon says it will hire 15,000 more people at its Bellevue, Washington, campus, as part of the company’s effort to allocate new workers after it abandoned its plans for New York City. The e-commerce giant had issues in New York trying to open a facility there, called Bellevue, where 2,000 employees are already located, a “business-friendly city.” It’s also close to the company’s Seattle headquarters. This is good news for those in the job market but if this isn’t what you are looking to do then how do you make yourself valuable in the job market?

Here are four ways to prepare for the job you want no matter your age:

1. Focus on Your Strengths, Not What You’re Lacking

Whether you are 20 years old or over 40 instead of focusing on your age, you need to focus on your strengths. Many young people with limited experience or older people who may not be up to date with the latest technologies focus on what they’re lacking, and this is a big mistake. Do you have the qualifications for the job? Can you bring value to this position? Whatever your strong suits are you should play that up in your resume, cover letter or communications with the recruiter. It’s easy to focus on why you can’t get the job, but the trick is not to let that get to you. Focus on your value!

2. Attack Your Job Search from All Angles

Networking, Answering ads and/or working with recruiters are the most effective ways to land a job. It is important that you just don’t focus on one method but all three. Networking obviously is the ideal way because it allows you to communicate your value directly, but the other methods have their benefits as well. Be proactive and use each method effectively.

3. Show/Explain Your Leadership Abilities and/or Innovation

Leadership and taking the initiative have nothing to do with age. Young leaders and old leaders can be more or equally effective as those who have the “ideal” age. Focus on your leadership abilities and be sure to display this to your current or potential employee. Also, make sure you are keeping up to date with current trends in your industry. This will allow you to show your innovation and add more value to your company.

4. Ask For What You are Worth

Lastly, ask for what you are worth. Don’t let being “too young” or “too old” deter you from asking for a salary you deserve. In fact, trying to downplay your worth may very well backfire on you. Also, if you have been with a company for a long time and your salary outpaces what the position is worth making sure you are adding to your skill set and not staying complacent.

Following these four tips can help you gain or retain employment. What are some other ways? Comment below>>>

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New Survey Says that Young People Don’t Like Job Hopping + How to Get Paid What You’re Worth

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Contrary to popular belief young people are not keen on job-hopping as most people think. According to a new survey, U.S. millennials and Gen Zers want to stay at their current companies for an average of 10 years and six years, respectively. Additionally, they say work is a major part of their lives, with 65% of people in Gen Z and 73% of millennials saying it’s part of their identities, according to a Zapier-sponsored poll. The age groups’ actions reflect the findings: Seven in 10 say they constantly check work messages outside the office. This is great for corporations but what does that mean for business owners?

If you are a freelancer or entrepreneur you know all too well the fight to get what you are worth. You will constantly be bombarded with offers to work for less or even for “exposure” as many like to call it now. But how do you gain the confidence and know how to charge and get what you’re worth? Here are 3 tips:

Build Your Resume. It’s said that if you do what you love you’ll never work a day in your life. Pursuing your passions and getting paid for it is the ultimate professional dream. You may have to start by working for free or at a discount rate to builds skill, ability, and your resume but once you have some stats under your belt its time to get that money… Keep in mind that if you are only in it for the money it will be difficult to experience long term financial gains so make sure you are pursuing your passion not only the paycheck.

Set a Standard. Pioneers have the ability to set standards. And even if you are providing services already in the market, no one can deliver them quite like you. Style and quality set you aside from others opening up a field of buyers seeking exactly what you offer.

Don’t Give In. A colorist (a person who literally adds color by hand or digitally in films and visual media; yes, there is a path for everyone) from Brooklyn, NYC once told me he had to be firm with pricing because he didn’t want to become that guy who works for free. After you have put in the work and set a standard you must not give in to fees below your ability. Yes, flexibility is key but don’t short change yourself. Getting paid your worth is ultimately the result of you believing in your ability and knowing there are people who will pay for it.

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