August newsletter

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Last month the Fed announced a rate hike of 75 basis points, or 0.75%, the fourth raise this year, in an effort to curtail inflation. The Federal Funds rate now stands at 2.25 to 2.5%.  While there was no noticeable market impact, it’s important to understand the trickle-down effect this may have on other rates that are meaningful to daily life.

Auto loans

Auto loans vary based upon the automaker, who is essentially the lender, and the credit quality of the issuer. Most major car manufacturers, according to Cars Direct, have hiked their loan rates since the beginning of 2022; this is coupled with a rise in car prices.

Bank interest rates

And now for the silver lining…

The proxy for the level of interest that banks are paying on consumer deposits is called the National Deposit Rate. As of July 18th, this rate was 0.10% for savings accounts, 0.03% for checking accounts, and 0.12% for money market instruments, as per the FDIC. Although there is no direct relationship between the Fed rates and the interest you earn on your accounts, they do tend to loosely correlate. The Fed hike may mean higher deposit rates.

CD rates

Certificates of Deposit, or CD’s, are short-term savings instruments offered by banks and credit unions. After they expire you can cash them in or roll them over to a new CD. As of July 26th, 2022, 6-month CD rates are as high as 2.5%. However, examining this from a long-term perspective, CD rates are still way below the double-digit rates of the 1980’s and 1990’s.

Credit card rates

A raise in interest rates means that the balance on any credit card debt is going higher. According to Bankrate, credit card interest rates stand at 17.25% as of July 20th, 2022. As credit card rates track the Fed Fund rate quite closely, this underscores the need for prudent management of credit cards, especially those carrying a balance.

Mortgage rates

Mortgage rates, which follow Treasury yields, have been steadily on the rise since January. According to Freddie Mac, the 30-year FRM stood at 5.54% and the 15-year at 4.75%, as of July 21, 2022. Adjustable rate mortgages and home equity lines of credit, however, do follow the Fed rates.

Is now the time to buy a new home? It may be better to wait, by these measures, although there are some signs that the housing market is cooling off due to recessionary fears.

T Bills

As of July 25th, the 3-month Treasury Bill stood at 2.41%, according to YCharts, after steadily climbing up since the beginning of 2022 from near zero levels. This is a positive sign for those looking to earn interest on any T-Bills held in investment accounts.

The bottom line

As long as inflation is high, the Fed has told us they are going to continue to raise rates. Given the inherent instability, it’s important to stay on top of your finances in times of economic changes such as these.

In the past we’ve written about I Bonds, and we encourage you to review our blog if inflation is a concern. We also wanted to mention TIPS, or Treasury Inflation Protected Securities. TIPS are bonds whose principal adjusts upwards with a rise in the Consumer Price Index and downwards with a drop.

Prudent, long-term focused financial planning and investment management are especially important in times of economic change. To discuss any implications for your personal situation, please reach out.

-Judd

Sources

Bankrate. 20 July, 2022. Current Credit Card Interest Rates. https://www.bankrate.com/finance/credit-cards/current-interest-rates/

Cars Direct. Bernstein, Alex. 18 July, 2022. Latest 2022 Interest Rate Increase Updates. https://www.carsdirect.com/deals-articles/latest-interest-rate-increase-updates

Deposit Accounts. 6 Month CD Rates. https://www.depositaccounts.com/cd/6-month-cd-rates.html

Dickler, Jessica. 27 July, 2022. CNBC. Here’s what the Federal Reserve’s back-to-back 75-basis point interest rate hikes mean for you. https://www.cnbc.com/2022/07/27/how-federal-reserves-75-basis-point-interest-rate-hike-impacts-you.html

FDIC. 18 July 2022. Bankers Resource Center. National Rates and Rate Caps. https://www.fdic.gov/resources/bankers/national-rates/index.html

Freddie Mac. 21 July, 2022. Mortgage Rates. https://www.freddiemac.com/pmms

Y Charts. 3 Month Treasury Bill Rate. https://ycharts.com/indicators/3_month_t_bill