The 2008 financial crisis had a devastating impact on Bank of America. Shares of the bank were trading for as low as $2.53 in 2009 and net income dropped from a high of $21 billion in 2006, to just $4 billion in 2008.
“Bank of America was one reason why much of the investing public and consumers and government lost faith and trust in banking,” recalled Mike Mayo, a bank analyst at Wells Fargo. “If the government did not intervene for Bank of America and the other banks, Bank of America would have failed.”
Fast forward to today, BofA is thriving despite concerns over inflation and threats of a possible recession. The bank reported net income of $31.9 billion in 2021, compared with just $4 billion in 2008.
“As the rates have gone up and if the recession is shallow, then we’re going to see widening spreads and the ability of Bank of America to have significant earnings from net interest income,” said Kenneth Leon, a research director from CFRA Research. “This is unique to the banking industry and Bank of America being one of the largest banks, stands to benefit the most.”
The hard-learned lessons from the financial crisis have also led BofA to undergo significant changes, allowing it to earn its position as the bank with the second-largest total assets in the United States. JPMorgan is still comfortably ahead as the largest bank in the U.S. based on total assets.
“The big change at Bank of America is that they have gone from irresponsible growth to responsible growth,” said Mayo.
A more conservative lending standard is just one example of the bank’s aim for sustainable growth.
“One key aspect of Bank of America’s responsible growth is to say no and no more often,” explained Mayo. “So that when they say yes, it results in a lot more growth that’s sustainable, responsible and better for reputation.”
BofA was unable to participate in CNBC’s coverage of this story.
Watch the video to learn more about how Bank of America was able to achieve one of the biggest comebacks in banking history.
With assets totaling more than $3 trillion, Bank of America is the second-largest bank in the U.S. today. Shares of the company have seen astonishing gains of over 290% in the last decade. But just more than a decade ago, the 2008 financial crisis pushed the bank to the brink of collapse. It was a loss so catastrophic that it required a $45 billion bailout from the U.S. Treasury. So how was Bank of America able to stage such an impressive comeback and where is it headed next?
The “microfinance” industry — long touted as a way to help poor, rural communities in developing countries — is pushing tens of thousands of farming families into debt traps as they attempt to adapt to a changing climate, according to a report.
The study, conducted by researchers at a group of U.K. universities, looked at a range of case studies in Cambodia, where it found easy-access loans had caused an “overindebtedness emergency” that was undermining borrowers’ long-term ability to cope with their new environment.
Modern microfinance institutions (MFIs), which are generally small, locally run organizations with a variety of funding sources such as international investors, banks and development agencies, emerged in the 1970s and grew rapidly in the early 2000s. They were promoted as a way to provide financial services, typically small working capital loans but also savings accounts and insurance, to the traditionally unbanked — such as women and people on very low incomes.
In Cambodia, around 61% of people live in rural areas, and 77% of rural households rely on agriculture, fisheries, and forestry for their livelihoods, according to development agency USAID.
Many have seen these traditional livelihoods affected by a mix of climate change, over-development and illegal logging and fishing, with increasing droughts, wildfires and unpredictable rainfall patterns causing crop losses and damage to the ecosystem of Cambodia’s vital Tonle Sap lake.
The establishment of hundreds of MFI branches since the early 2010s, which can be seen advertising services along roadsides around the country of 17 million people, has often harmed rather than helped those affected, the report published in September found.
In its survey of around 1,800 borrowers, roughly half cited feeding their family as their primary motivation.
But the authors say the loans are increasingly being taken up to service existing debt from a mix of formal and informal sources, rather than being put toward climate-adaptive investments. The loans arealso seeing farmers put assets including their land up as collateral, even when the loans are high-interest and have short repayment windows.
A Maxima Microfinance branch in Kandal Province, Cambodia, in July 2018. The establishment of hundreds of local MFI branches since the early 2010s has often harmed rather than helped those affected, a report found.
Taylor Weidman | Bloomberg | Getty Images
NGOs estimate around 167,000 Cambodians have sold their land to pay microfinance loans over the last five years.
The level of microfinance indebtedness in Cambodia at the end of 2021 was $4,213 per capita, more than double gross domestic product per capita. Around 2.6 million people have taken out microloans.
“The debt burden created by the nexus between climate change and microfinance creates enormous challenges for many individuals and communities causing physical and emotional stress,” said Ian Fry, United Nations special rapporteur on human rights within climate change, who also acknowledged microfinance had been promoted by the U.N., World Bank and other international agencies.
Some oversight of the industry does exist. MFIs are required to register with the National Bank of Cambodia, the country’s central bank, which in December 2021 stopped issuing new licenses and told institutions to improve the “quality, efficiency and affordability” of their services. In 2017, it capped microloan interest rates at 18% annually.
The Cambodia Microfinance Association, a trade body, maintains that MFI loans have an overall positive impact in increasing income and land ownership, and has issued lending guidelines to “reduce the risk of excessive debt” for consumers. It has also hit back at critiques of the industry by NGOs and in previous reports. The NBC and CMA did not respond to requests for comment.
The issues surrounding microfinancing institutions in Cambodia — and around the world, from South Africa to India to Mexico — have been highlighted by NGOs and journalists for nearly a decade.
Microfinance institutions globally had an estimated gross loan portfolio of $124 billion in 2019.
In some cases it has been found to have positive effects. A 2016 book published by the World Bank argued microfinance loans had reduced poverty and increased incomes in Bangladesh, and banking giant HSBC still promotes its funding of microfinance in the country.
But the World Bank, an early and longstanding advocate of microfinance, has also been warning for years of risks including overindebtedness and the growing commercialization of the industry.
Farmer in rice field. Kep. Cambodia. (Photo by: Pascal Deloche/Godong/Universal Images Group via Getty Images)
Godong | Universal Images Group | Getty Images
In the 30 years of advocacy done by Cambodian human rights NGO Licadho, land-grabbing has been one of the most prolific problems it addresses on the ground, its director, Naly Pilorge, told CNBC by phone.
That’s in part a legacy of the murderous Khmer Rouge regime, which banned private land ownership when it ran the country from 1975 to 1979 and left survivors without land deeds in the tumultuous years that followed.
“We started noticing that in rural communities, workers were losing their land because of another problem even when they had secured their land titles — they were losing it to MFIs,” Pilorge said. “How can a farmer farm without land?”
People were being forced to migrate and look for alternative work, Licadho found, which was difficult in the Cambodian economy, where agriculture makes up around a fifth of GDP, and the biggest employer is the garment factory sector, which has been hit hard by the Covid-19 pandemic and EU sanctions.
Cambodia was badly affected by the pandemic, with revenue from tourism plunging from its all-time high of $4.9 billion in 2019 to just over $184 million in 2021, according to government figures.
Licadho has done four research projects into issues surrounding microfinance to highlight its risks, including one in 2021.
Motorists ride past a Sonatra Microfinance Institution Plc branch in Phnom Penh, Cambodia, on Friday, July 31, 2018.
Bloomberg | Bloomberg | Getty Images
“The numbers didn’t make sense. In a country perceived as developing, that struggled with tourism due to Covid, the MFI sector was still growing at 30% each year, and the average loan went from around $3,000 to $4,000,” Pilorge said.
“Some of the people being offered these amounts have never seen $500 in cash, let alone $4,000, so when someone comes and offers it in exchange for their land as collateral it is tempting.” Cambodia uses both the Cambodian riel and the U.S. dollar.
Loan forms are complicated to the average person, she added, but “a significant portion are given to ethnic minorities who neither write nor read Khmer. People are signing with a thumb print.”
In the capital Phnom Penh, she added, she commonly meets people working seven days a week to pay off spiraling MFI loans.
The 2022 report added its support to prior calls for the establishment of debt relief and interest suspension programs. That should be in tandem with efforts to cancel and restructure the national debt of countries in developing countries,it said.
It also said the international development community should redirect support away from microfinance institutions and into more targeted projects, and argued there needs to be more “robust taxation and regulation of profits, dividends, and capital gains generated by the foreign owners of Cambodian microfinance institutions.”
The U.N.’s Ian Fry called on the international finance community to “take strong heed of the recommendations found in this report and seriously rethink their approach to microfinance.”
Pilorge also took aim at international governments, financing institutions and investors who fail to prevent funds being funneled toward predatory activities.
“All these international investors, Asian, European, Americans and so on, still perceive MFIs as a positive thing because of the initial concept. It looks good, you get a high return, everybody thinks they are helping poor people. But there have been red flags on every level for 15 years and they have been ignored,” she said.
“Investors are happy, they get the interest, the agents get a base salary and commission, and the people who suffer are the poorest.”
When members of the Federal Reserve make public statements, investors tend to listen. Over the past two decades, central bankers have consistently shared key information about the future trajectory of important inputs like interest rates. The Fed’s forward guidance on interest rates amid historic inflation has taken stock markets for a ride in 2022. As investors wait for a pivot, a panel of experts explains why many in the market choose not to fight the Fed.
The Federal Reserve, over its more than centurylong existence, has emerged as a leading force in the stock market.
This stature was bolstered by the central bank’s adoption of two unconventional policy tools in the 2000s – large-scale asset purchases and forward guidance.
Large-scale asset purchases refer to the Fed’s emergency buying of government debt and mortgage-backed securities. Forward guidance refers to the central bank’s public communications about the future trajectory of monetary policies. The guidance often hints at the expected path of the federal funds interest rate target in advance of a policy change.
Central bankers in 2022 repeatedly told the public to expect tighter economic conditions as it battles inflation. Economists believe this has contributed to months of declining prices across the S&P500.
“I think they know they gambled and lost and that they have to do something serious in order to get inflation back under control” said Jeffrey Campbell, an economics professor at Notre Dame University and former Federal Reserve economist. “I fear that they took a gamble that inflation wasn’t too real at the beginning of 2021.”
The Fed has reacted to hotter-than-expected inflation with seven interest rate hikes in 2022. These higher rates can weigh on publicly traded companies, particularly growth stocks in tech.
Meanwhile, the Fed’s asset portfolio has decreased more than $336 billion since April 2022. Experts tell CNBC that the full combined effects of this economic tightening are unknown.
That has many people on Wall Street waiting for the central bank to pivot, and bring interest rates back down. At the same time, many financial advisors are calling for caution.
“If you have somebody that has a thumb on the scale or has a decided advantage about what’s going to happen, whether we think good things or bad things are going to happen, it’s best not to fight that policy.” said Victoria Greene, founding partner and chief investment officer at G Squared Wealth Management.
Nonetheless, many experts believe that central bank policy is only one piece of the puzzle. Both black swan events and investor sentiment play a massive role in shaping the trajectory of markets, too. “Sure don’t fight the Fed but … don’t believe too much that the Fed is all powerful,” said John Weinberg, policy advisor emeritus in the research department at the Federal Reserve Bank of Richmond.
Watch the video above to learn how the Fed shaped 2022’s stock market.
Vishnu Varathan of Mizuho Bank says emerging markets in Asia are gauging “whether there will be any unwanted … macro stability risks from the Fed doing more than what markets are betting on.”
People owed a piece of the $2 billion that Wells Fargo has agreed to pay to customers affected by some of its banking practices could soon receive those funds.
The nation’s fourth-largest bank reached a settlement with the Consumer Financial Protection Bureau, announced Tuesday, to resolve customer abuses related to auto lending, deposit accounts and mortgage lending, affecting about 16 million accounts.
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Wells Fargo also agreed to pay a $1.7 billion civil penalty — the largest ever doled out by the CFPB.
“We have already communicated with many of the customers who may have been impacted by the matters covered in the settlement, and those efforts are ongoing,” a Wells Fargo spokesperson told CNBC.
In other words, if you are among the affected customers, you may already have received your share of the $2 billion, or you will automatically hear from Wells Fargo. You do not need to take any action, the bank said.
The CFPB said that customers of the bank were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed and had payments to auto and mortgage loans misapplied. Additionally, Wells Fargo charged consumers unlawful surprise overdraft fees and applied other incorrect charges to checking and savings accounts, and improperly froze some accounts, the CFPB said.
More than 11 million customer accounts already have received more than $1.3 billion related to auto loan issues. Another 5 million customers with deposit accounts are receiving $500 million in remediation, including $205 million related to surprise overdraft fees, and thousands of customers with mortgages will receive a piece of at least $195 million, a CFPB spokesperson said.
The amount that each harmed consumer will get (or already got) depends on the specifics. For customers whose vehicles were wrongly repossessed, the remediation includes $4,000, but could be higher. For deposit accounts that were wrongly frozen, the settlement calls for $150 for each affected customer.
“As we have said before, we and our regulators have identified a series of unacceptable practices that we have been working systematically to change and provide customer remediation where warranted,” said Charlie Scharf, Wells Fargo CEO, in the company’s press release about the settlement.
“This far-reaching agreement is an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us,” Scharf said.
As the cost of living skyrockets, many adults are turning to a familiar safety net: mom and dad.
Nearly a third of millennials and Gen Zers, over the age of 18, get financial support from their parents, according to a new survey by personal finance site Credit Karma. The site polled more than 1,000 adults in October.
More than half of parents with adult children said their kids are living with them. Another 48% said they pay for their kids’ cell phone plan, car payments or other monthly bills. Nearly a quarter also said they provide their adult children with a regular allowance, pay some or all of their rent or have them as an authorized user on their credit card, the report found.
“What used to be paying your kid’s cell phone bill every few months has now turned into a much more extensive set of expenses for many parents,” said Courtney Alev, Credit Karma’s consumer financial advocate.
During the pandemic, the number of adults moving back in with their parents — often referred to as “boomerang kids” — temporarily spiked to a historic high.
Most said they initially moved in with their parents out of necessity or to save money. Hefty student loan bills from college and soaring housing costs have put a financial stranglehold on those just starting out. The surging cost of living and sky-high rents are making it harder to move on.
The number of households with two or more adult generations has quadrupled over the past five decades, according to a separate report by the Pew Research Center based on census data from 1971 to 2021. Such households now represent 18% of the U.S. population, it estimates.
Finances are the No. 1 reason families are doubling up, Pew found, due in part to ballooning student debt and housing costs.
Now, 25% of young adults live in a multigenerational household, up from just 9% five decades ago.
In most cases, 25- to 34-year-olds are living in the home of one or both of their parents. A smaller share live in their own home and have a parent or other older relative staying with them.
Not surprisingly, older parents are also more likely to pay for most of the expenses when two or more generations share a home. The typical 25- to 34-year-old in a multigenerational household contributes 22% of the total household income, Pew found.
For parents, however, supporting grown children can be a substantial drain at a time when their own financial security is at risk.
In an economy that has produced the highest inflation rate since the early 1980s, the cost of providing support has risen sharply. According to Credit Karma, 69% of the parents who help their adult children said it causes them financial stress.
“It’s essential that parents do what they can to first take care of themselves financially, before offering financial support to their adult children,” Alev said.
“Like with anything, make a budget for your income and expenses, factoring in savings, debt repayment and, if possible, contributions to a retirement fund,” she advised.
“Once you’ve done that work, see how much you have left over to feasibly help your adult kids and set that expectation with them. You might even consider setting an expiration date to give your adult children a timeline for when they need to be back on their feet.”
The U.S. government’s consumer watchdog agency announced Tuesday that it ordered Wells Fargo (WFC) to pay $3.7 billion in connection with the bank’s previous wrongdoing, a sizable penalty but one that represents progress toward eventually removing a dark regulatory cloud that’s been hanging over the bank for years. The settlement stems from a host of customer abuses in key Wells Fargo product lines including auto loans and mortgages, as well as illegal surprise overdraft fees and bank account freezes, according to the Consumer Financial Protection Bureau (CFPB). Wells Fargo will pay a $1.7 billion civil penalty and more than $2 billion to the “over 16 million affected consumer accounts,” the CFPB said. Wells Fargo has already paid out some of that $2 billion, the bank told Jim Cramer. Wells Fargo has long made clear it was being investigated by the CFPB, so Tuesday’s announcement wasn’t a complete shock. However, the magnitude of the penalty had not been known until now. Shares of Wells Fargo dropped roughly 2% to just under $41 each. At one point shortly after Tuesday’s open on Wall Street, the stock had traded modestly higher. “This is a situation where it just seems endless,” Jim said Tuesday morning on CNBC, referring to the many investigations, consent orders and fines that Wells Fargo has faced in recent years. “The question is, ‘How far does this put them along in terms of all the other things they’ve done? This is the big one,” he added. When the news hit Tuesday morning, there was a lot of confusion around the numbers. Technically, the bank was ordered to pay $3.7 billion. However, Wells Fargo had already reserved, or set aside, more than half of that. Jim’s follow-up conversations with the bank indicate that when it’s all said and done, the total figure to move on from these issues could be even larger, closer to $5.5 billion. Big picture, we think this is incrementally positive for Wells Fargo as CEO Charlie Scharf works to clean up the bank and satisfy regulators’ demands following scandal-ridden years under previous management. Scharf became CEO in October 2019 , and he’s overseen the end of numerous consent orders implemented by regulators, including the CFPB and Office of the Comptroller of the Currency. Following Tuesday’s CFPB action, Wells Fargo said Tuesday it expects to record a $3.5 billion operating losses expense in the fourth quarter, including the “incremental costs of the CFPB civil penalty and related customer remediation as well as amounts related to outstanding litigation matters and other customer remediation.” The Club took a stake in Wells Fargo in January 2021, knowing it would take time for all these regulatory issues to be resolved, including the most burdensome one: a Federal Reserve-imposed asset cap of $1.95 trillion. Wells Fargo is a turnaround story. Implemented in 2018 after years of scandals, the asset cap hampers the bank’s ability to issue new loans. It’s impossible to know exactly when it will be lifted. Some think it could happen in late 2023. In any case, that’s why developments like Tuesday — which put other regulatory overhangs in the rearview mirror — are beneficial in the grand scheme of things. “While we do not see today’s action as having a direct read-through to the asset cap and its potential removal, we would take today’s announcement as a sign of positive progress on moving toward that ultimate goal,” analysts at Jefferies wrote Tuesday. Bottom line For the Club, we think Wells Fargo looks attractive at these levels, and we have a 1 rating on the stock. The bank continues to work on reducing expenses across its businesses through improved efficiency, which is good for profitability. Additionally, Wells Fargo’s large customer deposit base allows the bank to grow earnings as interest rates rise. While recessions typically aren’t good for banks, we don’t see the U.S. economy taking that severe of a downturn next year. We’re encouraged that Wells Fargo’s credit quality remained strong, as of its third-quarter results , which were released back in October. This bolsters our conviction in the name, combined with the aforementioned steps to grow earnings and the step-by-step clearing of regulatory overhangs. (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Wells Fargo
Rick Wilking | Reuters
The U.S. government’s consumer watchdog agency announced Tuesday that it ordered Wells Fargo (WFC) to pay $3.7 billion in connection with the bank’s previous wrongdoing, a sizable penalty but one that represents progress toward eventually removing a dark regulatory cloud that’s been hanging over the bank for years.
CNBC’s Hugh Son joins ‘Closing Bell: Overtime’ to report on Wells Fargo agreeing to a $3.7 billion settlement with the CFPB over customer abuses tied to checking accounts, mortgages and auto loans.
Jason Goldberg, Barclays senior equity analyst, joins ‘Closing Bell’ to discuss Wells Fargo’s record setting CFPB settlement, how Wells is positioned to withstand the current interest rate environment and the how new management will make progress on lifting the asset cap.
KPW’s Sanjay Sakhrani joins ‘TechCheck’ to discuss Apple’s adoption of fintech with the Apple Wallet, burgeoning innovations in the space and intermediates streamlining the payment ecosystem.
Charles Scharf, chief executive officer of Wells Fargo & Co., listens during a House Financial Services Committee hearing in Washington, D.C., U.S., on Tuesday, March 10, 2020.
Andrew Harrer | Bloomberg | Getty Images
Wells Fargo agreed to a $3.7 billion settlement with the Consumer Financial Protection Bureau over customer abuses tied to bank accounts, mortgages and auto loans, the regulator said Tuesday.
The bank was ordered to pay a $1.7 billion civil penalty and “more than $2 billion in redress to consumers,” the CFPB said in a statement. In a separate statement, the San Francisco-based company said that many of the “required actions” tied to the settlement were already done.
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“The bank’s illegal conduct led to billions of dollars in financial harm to its customers and, for thousands of customers, the loss of their vehicles and homes,” the agency said in its release. “Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank.”
The resolution lifts one overhang for the bank, which has been led by CEO Charlie Scharf since October 2019. In October, the bank set aside $2 billion for legal, regulatory and customer remediation matters, igniting speculation that a settlement was nearing.
But other regulatory hurdles remain: Wells Fargo is still operating under consent orders tied to its 2016 fake accounts scandal, including one from the Fed that caps its asset growth.
Furthermore, the bank said that fourth-quarter expenses would include a $3.5 billion operating loss, or $2.8 billion after taxes, from the incremental costs of the CFPB civil penalty and customer remediation efforts, as well as other legal matters. The bank is still expected to post an overall profit when it reports results in mid January, according to a person with knowledge of the matter.
Shares of the bank rose 1.2% in early trading.
“This far-reaching agreement is an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us,” Scharf said in his statement. “We and our regulators have identified a series of unacceptable practices that we have been working systematically to change and provide customer remediation where warranted.”
CFPB Director Rohit Chopra said Wells Fargo’s “rinse-repeat cycle of violating the law” hurt millions of American families and that the settlement was an “important initial step for accountability” for the bank.
This story is developing. Please check back for updates.
Jean Lemierre, chairman of BNP Paribas, discusses how he believes inflation will impact companies and people in the new year, and how he expects the energy crisis to challenge Europe in the long term.
The Bank of England has released images of the new banknotes that will featured King Charles III’s portrait.
Bank of England
The Bank of England released images of the first bank notes to feature the portrait of King Charles III Tuesday. The new notes will enter circulation from the middle of 2024.
The new £5, £10, £20 and £50 polymer notes include a portrait of the king in the notes’ see-through security panel. They are otherwise unchanged from the designs currently in circulation.
“This is a significant moment, as the King is only the second monarch to feature on our banknotes,” Bank of England Governor Andrew Bailey said in a statement.
The tradition of having monarchs on banknotes only started in 1960. Coins have long showcased images of the sovereign.
Hugh Son, a CNBC.com banking reporter, joins 'Power Lunch' to discuss investor disinterest in banking, headwinds and tailwinds for the banking sector and business overhauls in the banking sector.
LONDON — Elon Musk’s controversial Twitter firing spree is sending workers into the arms of organized labor, according to the new head of Britain’s Trades Union Congress.
“Elon Musk is a perfect recruitment tool for the trade union movement,” Paul Nowak told POLITICO. Since the Tesla billionaire took over the social media platform in October, Prospect, one of the trade union federation’s 48 affiliates, “has seen its membership in Twitter go up tenfold,” he said.
The influx is “precisely in response” to Musk, argued Nowak, who “thinks he can issue a directive from San Francisco that somehow just happens all around the world with no regard to employment law.”
Musk has fired roughly 3,700 employees — nearly half of Twitter’s workforce — in a round of mass layoffs since buying the company.
U.K. Twitter employees earmarked for an exit received an email saying their job would be “potentially” impacted or “at risk,” because, under British law, firms are required to consult with staff over mass redundancies.
In November, Musk meanwhile gave staff an email ultimatum to either go “extremely hardcore” by “working long hours at high intensity” or quit the company.
Musk’s behavior is, Nowak said, “a great recruiting tool for us.”
“If I was a young worker in tech, I’d be thinking that being a union member might be a good investment at the moment,” he said. “If it can happen at Twitter, it can happen anywhere.”
Unions have in recent years ramped up their activity in another part of the tech world: the gig economy. Uber and food delivery service Deliveroo recently signed agreements with unions, while some Apple stores have voted for union recognition. Last year also saw the first-ever industrial action ballots at a U.K. Amazon warehouse.
Organized labor is “beginning to make inroads” in tech, Nowak said — but it still needs “to step up that work.” Twitter had not responded to a request for comment by the time of publication.
Strikes
Nowak takes the helm at the TUC at a time of major industrial unrest in the U.K, as employees in a host of sectors rail against stagnant wages amid soaring inflation.
U.K. Twitter employees earmarked for an exit received an email saying their job would be “potentially” impacted or “at risk” | Justin Sullivan/Getty Images
“It doesn’t matter whether it’s railway workers, postal workers, nurses, paramedics, our members aren’t on strike for the sake of it,” he said.
Since the financial crisis in 2008, the median income in Britain has fallen behind neighboring countries in Europe. An analysis by the TUC shows workers are £20,000 poorer, on average, since 2008 because pay has failed to keep up with inflation. By 2025 the union group expects that gap to increase to £24,000, with even larger gulfs for frontline healthcare staff who are striking.
Britain’s Retail Price Index measure inflation reached 14 percent last year, and economists forecast inflation — in part spurred by the pandemic and Russia’s invasion of Ukraine — will persist longer in the U.K. than among its G7 partners.
“Households can’t afford as much as they have been able to in the past,” said Josie Dent, managing economist at the Centre for Economics and Business Research. “Naturally that creates weaker demand.”
Against that backdrop, Novak said he wants the British government to stimulate domestic demand by putting more pay in workers’ pockets. The government argues boosting public sector pay will further fuel inflation and push its already shaky public finances further into the red.
“What do our members do when our members get paid and get decent pay rises? They go and spend that money in local shops, hotels, restaurants,” said Nowak, and “they don’t squirrel it away in offshore bank accounts, or save it away for a rainy day.”
“You have to create demand internally in the economy as well,” he added. “We’ve had the government sort of turn that common sense on its head.”
The Federal Reserve recently announced the seventh consecutive increase to the federal funds rate and indicated its intent to continue raising interest rates going forward. The Fed has repeatedly raised rates this year in an effort to corral rampant inflation that has reached 40-year highs. However, there are signs inflation is starting to cool.
Higher interest rates may help curb soaring prices, but it also increases the cost of borrowing which can make everyday financial products more expensive, like mortgages, personal loans and credit cards.
Given the current economic outlook and interest rate environment, saving money and paying down high-interest debt have become more appealing. Select dives into what you should do with your money after the Fed’s interest rate hike.
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A complex web of factors influences the economy and interest rates in general, making it impossible to predict the future rate environment with absolute certainty. But right now there are no signs rates will be dropping anytime soon, and the Fed says it will continue rate hikes in 2023. And even if the economic outlook suddenly shifts, it’s always a good idea to focus on the fundamentals that put you on firm financial footing.
That’s why now is a good time to reassess your approach to saving and totake a good hard look at your debt — especially debt with a variable interest rate.
Savings accounts are paying better
During the height of the pandemic, the interest you could earn on money held in a savings account was next to nothing. Even high-yield savings accounts often had APYs under 1%.
But in a world of high interest rates, savings accounts can earn much more considerable returns. Currently, the best high-yield savings accounts offer rates of over 4% with no monthly fees.
At the time of writing, a UFB Best Savings account has a 4.11% APY with no minimum balance and no monthly fees. And it’s not the only account offering high returns. High-yield savings accounts with Marcus by Goldman Sachs and LendingClub also have APYs of 3% or more.
Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D
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The cost of borrowing is increasing
While savers have reasons to rejoice during an era of high rates, borrowers may feel the financial pain of increased costs. And if you have debt tied to an adjustable interest rate, you’ll pay more for themoney you’ve already borrowed.
One of the best ways to save money during times with higher interest rates is to focus on paying down your debt with the highest interest rate first. The balance on your credit card is often a good place to start, as many cardscan easily have an annual percentage rate (APR) of more than 20%. That’s more than double today’sinflation rate and far higher than what you’d earn with a savings account.
Pro tip: There are a number of 0% APR credit cards that charge no interest for a set amount of time, typically six to 21 months.
An emergency fund is a vital safety net
Building up an emergency fund is a wise decision regardless of the economy’s health.
Your personal circumstances can take a turn for the worst even if the broader economy is doing well. Although there is debate as to how much you should save in your emergency fund, a good target is to have enough funds to cover three to six months of living expenses. And, keeping your emergency fund in a high-yield savings account allows you to earn interest and have your cash work for you.
Although there are signs that the pace of the increase in rates may be slowing, the Fed hasn’t signaled it will stop with the rate hikes anytime soon. With high rates, saving becomes more appealing, and paying off your debt is even more important.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
