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Tag: credit cards

  • Air Miles expands offerings, including ways to earn and redeem – MoneySense

    Air Miles expands offerings, including ways to earn and redeem – MoneySense

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    As you might recall, BMO Financial Group bought Air Miles in March 2023, after the program’s owner, Loyalty Ventures Inc., filed for bankruptcy. At that time, BMO said the acquisition “would be a made-in-Canada opportunity to enable a reinvigoration for one of Canada’s largest loyalty programs.” 

    Air Miles collectors, that day has come. Let’s look at how the program has changed.

    What’s new about Air Miles?

    In addition to its emphasis on moments (collecting them, winning them, getting to them faster), the new Air Miles brand platform reflects several program enhancements rolled out since April:

    More ways to earn

    Collectors can take advantage of two ways to rack up more Miles: 

    • Air Miles Receipts, introduced in 2023, gives members Miles for buying certain products and scanning the receipts with the Air Miles app within 14 days. Air Miles Receipts initially included grocery stores. It recently expanded to liquor stores, and more categories are coming in September.
    • Card-linked offers give collectors bonus Miles at partner retailers. To access offers, link a Canadian-issued Mastercard to your Air Miles Account. (BMO Air Miles Mastercards are automatically linked.) Two recent examples: 250 bonus Miles for spending $500 at LG Electronics, and 125 bonus Miles for spending $300 at Porter Airlines. 

    More ways to redeem 

    Collectors can redeem Air Miles for eVouchers at several more well-known retailers, including Amazon, Sporting Life, TJX brands (Winners, HomeSense, Marshalls) and more. Redeeming 95 Cash Miles gets you $10 in value (the same as before the relaunch). 

    Gas discounts at Shell 

    If you have a BMO Air Miles–linked credit card or debit card, you’ll save $0.07 per litre on Shell V-Power premium fuel and $0.02 per litre on other Shell fuel—a nice perk given the high cost of gas.

    Other credit card benefits

    BMO Air Miles credit cardholders can now earn double the Miles on purchases at wholesale clubs and liquor retailers in Canada, the same boosted earn rate they get at eligible grocery stores.

    Conversions between Cash Miles and Dream Miles 

    Air Miles requires cardholders to allocate their reward Miles into two buckets: Cash Miles (redeemable for retailer eVouchers and in-store discounts) and Dream Miles (redeemable for merchandise and travel rewards). The ratio is up to you, but you couldn’t convert one to the other—until now. Onyx and Gold collectors (the upper two of Air Miles’ three tiers) now have more flexibility: Onyx collectors get unlimited transfers, and Gold collectors can transfer up to 1,000 Miles each year. (Sorry, Blue collectors, no transfers for you.)

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    Jaclyn Law

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  • Comparing buy now, pay later programs: Are installment plans a budget win or finance fail? – MoneySense

    Comparing buy now, pay later programs: Are installment plans a budget win or finance fail? – MoneySense

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    Some BNPL providers report your payment history to credit bureaus, which can positively affect your credit score if you make the payments on time. In addition, many BNPL providers only run a soft inquiry on your credit report to determine eligibility. That said, it’s possible that a credit check isn’t done at all. So, in this case, your credit report and credit score won’t be impacted by simply applying for BNPL. 

    There are some potential downsides. BNPL loans often require repayment within a short period, especially for smaller purchases, which might not contribute significantly to building your credit history. In that case, a credit card would be a better option. In addition, not all providers report to credit bureaus, which can create what deHaan calls “phantom debt.” When your credit score goes down, credit card companies can see this and won’t offer or approve you for another card, but that’s not the case with BNPL. This can cause consumers to take on more debt than they can handle. 

    DeHaan explained how it works: “So, I open a BNPL account with one provider, I max it out, I can’t pay it off. I go to the next one, I do the same thing… And before I know it, I’ve got three or four maxed-out credit lines, and the reason I can keep getting them is because there’s no reporting about each other’s maxed-out limits.” 

    Before signing up for any BNPL service, ensure you can comfortably repay your purchases in full. While BNPL can potentially boost your credit score through timely payments, it can also negatively impact your score if you miss any payments, leading to additional debt from late fees and interest charges.

    What’s in it for retailers?

    BNPL options benefit retailers in several ways. It can increase sales by allowing customers to spread out payments, encouraging them to spend more with larger purchases. In addition, BNPL providers typically handle the financial transactions and assume the risk of non-payment, so there’s no risk to the retailers themselves.

    What does a credit counsellor think about buy now, pay later?

    While the convenience of BNPL can be tempting, it’s important for consumers to read and understand the terms and conditions that come with installment plans. If you’re not careful, BNPL may deter you from achieving your financial goals. Like all loans, these plans aren’t without risks. Here are a few to know about.

    BNPL can lead to overspending

    For some, installment plans can encourage impulse spending. Deferred payments are an extremely popular option for many Canadians feeling the pinch of inflation and lifestyle creep. Being able to buy something that was previously unobtainable may tempt you to spend more than you can afford. 

    “When credit is cheap and easy, some might get themselves into trouble by spending beyond their means. With BNPL, many of the users tend to be the most vulnerable [financially], and they might not yet have a credit score,” deHaan said. 

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    Doris Asiedu

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  • The Federal Reserve holds interest rates steady — here’s what that means for your money

    The Federal Reserve holds interest rates steady — here’s what that means for your money

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    The Federal Reserve announced Wednesday that it will leave interest rates unchanged. Fresh inflation data issued earlier in the day showed that consumer prices are gradually moderating though remain above the central bank’s target.

    The Fed’s benchmark fed funds rate has now stood within the range of 5.25% to 5.50% since last July.

    The central bank projected it would cut interest rates once in 2024, down from an estimate of three in March.

    For consumers already strained by the high cost of living, there is an added toll from persistently high borrowing costs.

    “It’s not enough that the rate of inflation has come down,” said Greg McBride, chief financial analyst at Bankrate.com. “Prices haven’t, and that is what is really stressing household balances.”

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    Inflation has been a persistent problem since the Covid-19 pandemic when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to the highest level in decades.

    The federal funds rate, which is set by the U.S. central bank, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    The spike in interest rates caused most consumer borrowing costs to skyrocket, and now, more Americans are falling behind on their payments.

    From credit cards and mortgage rates to auto loans and student debt, here’s a look at where those monthly interest expenses stand.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — nearing an all-time high.

    “Consumers need to understand that the cavalry isn’t coming anytime soon, so the best thing you can do is take things into your own hands when it comes to lowering credit card interest rates,” said Matt Schulz, chief credit analyst at LendingTree.

    Try calling your card issuer to ask for a lower rate, consolidating and paying off high-interest credit cards with a lower-interest personal loan or switching to an interest-free balance transfer credit card, Schulz advised.

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    The average rate for a 30-year, fixed-rate mortgage is just above 7%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

    “Going forward, mortgage rates will likely continue to fluctuate and it’s impossible to say for certain where they’ll end up,” noted Jacob Channel, senior economist at LendingTree. “That said, there’s a good chance that we’re going to need to get used to rates above 7% again, at least until we start getting better economic news.”

    Auto loans

    Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

    The average rate on a five-year new car loan is now more than 7%, up from 4% in March 2022, and that’s not likely to change, according to Ivan Drury, Edmunds’ director of insights.

    “Until we hit summer selldown months in the latter half of the third quarter, we should expect rates to remain relatively static during the foreseeable future,” Drury said.

    However, competition between lenders and more incentives in the market lately have started to take some of the edge off the cost of buying a car, he added.

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who took out direct federal student loans for the 2023-24 academic year are paying 5.50%, up from 4.99% in 2022-23 — and the interest rate on federal direct undergraduate loans for the 2024-2025 academic year will be 6.53%, the highest rate in at least a decade.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up a cash cushion, according to Bankrate’s McBride.

    “Savers are sitting back and enjoying the best environment they’ve seen in more than 15 years,” McBride said.

    Currently, top-yielding one-year certificates of deposit pay over 5.3%, as good as a high-yield savings account.

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  • Credit card borrowers are starting to show greater strength, new data indicates

    Credit card borrowers are starting to show greater strength, new data indicates

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    After struggling for the last two years, credit card borrowers appear to be turning the corner. 

    Late payments on credit cards aren’t rising much and are even declining at some major card companies, according to recent data. And while cardholders’ balances are continuing to rise, their growing incomes mean they’re better able to keep up with payments.

    There are plenty of ways for things to go wrong. Interest rates on credit cards are at their highest levels in decades. Inflation continues to take a bite out of consumers’ wallets. Younger borrowers and those with lower credit scores are struggling more. And the economy could always falter, even if Friday’s job report is a sign of health.

    But at the very least, the credit card industry is no longer showing widespread deterioration, reducing the risk that banks will absorb big losses by charging off loans from troubled borrowers.

    “There’s reason to be cautiously optimistic,” said Susan Fahy, chief digital officer at the credit-scoring company VantageScore.

    As of April 2024, some 1.35% of credit card balances had late payments of at least 30 days, according to VantageScore’s CreditGauge tracker. That figure has dropped in recent months, bucking the general trend of increases that started in 2021.

    Credit card metrics were unusually healthy in 2020 and 2021, as home-bound cardholders spent less and paid down their credit cards with their savings and stimulus funds. Later, as delinquencies started ticking up again, industry executives described the worsening they were seeing as “normalization.”

    If late payments persist, banks eventually charge off loans from seriously delinquent borrowers. Charge-off rates have gone a little past normal, but not by too much. Banks charged off some 4.4% of credit card loans in the first quarter, a bit more than they did before the pandemic but still far less than their 2009 level of 10.5%.

    Consumers are “managing” through today’s inflationary environment without showing big signs of wobbling, according to Brian Wenzel, chief financial officer at the credit card issuer Synchrony Financial. The average consumer is “pulling the economy forward,” Wenzel said Monday in remarks at an industry conference, even if Americans are shopping for cheaper products or pulling back on travel.

    “We see general stability in their delinquency stages,” Wenzel said, adding that his company’s charge-offs peaked in April.

    In April, 1.35% of credit card balances had payments that were at least 30 days late, reflecting a recent improvement in borrowers’ payment behavior, according to VantageScore data.

    Patrick T. Fallon/Bloomberg

    Synchrony’s charge-off rate fell to 6.5% of its loans in May, down from 6.7% in April, according to monthly data the company released Monday. The company expects its charge-offs to be lower in the second half of the year, partly because fewer customers are running late on their payments. Delinquencies at Synchrony fell for the third month in a row.

    Other credit card executives have also been optimistic in recent months.

    “The U.S. consumer remains a source of strength in the economy,” Capital One Financial CEO Richard Fairbank told analysts in April, chalking that up partly to a job market that “remains strikingly resilient.”

    Delinquencies were still rising at some major banks, including JPMorgan Chase and Bank of America, at the end of the first quarter. New data will be released next month as the industry reports second-quarter earnings.

    But there are ample signs of an “inflection in delinquencies across the consumer credit space,” Jefferies analyst John Hecht wrote in a note to clients this month, pointing to improvements in credit cards, auto loans and personal loans.

    “Broad data supports the notion that the credit cycle is turning,” Hecht wrote, a factor that may drive up credit card companies’ stock prices as investors gain confidence that the environment is improving.

    Even if the economy takes a negative turn, lenders have set aside enough reserves to cover loan losses under a “moderately worse employment situation,” Hecht wrote.

    Mark Narron, a Fitch Ratings analyst who covers banks, said that some deterioration may still occur in the coming months as metrics continue to find their post-pandemic normal. That’s particularly the case among lenders who took on riskier borrowers when conditions were healthier.

    Younger credit card borrowers and those with lower incomes have seen their delinquencies rise at a sharper rate, economists at the Federal Reserve Bank of New York have noted. Borrowers who are maxing out their cards have also been far more likely to fall behind on their payments, the New York Fed economists wrote in a blog post last month.

    To see significant improvements, either the number of maxed-out borrowers must decline or their delinquency rates must fall, according to the New York Fed economists.

    “So far, the data show neither of these trends moving in the right direction,” they wrote. “If these trends continue and other factors influencing delinquencies remain the same, credit card delinquencies are likely to continue to rise.”

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    Polo Rocha

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  • Home equity is near a record high. Tapping it may be tricky due to high interest rate

    Home equity is near a record high. Tapping it may be tricky due to high interest rate

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    Cultura Rm Exclusive/twinpix | Image Source | Getty Images

    Home equity is near all-time highs. But tapping it may be tough due to high interest rates, according to financial advisors.

    Total home equity for U.S. mortgage holders rose to more than $17 trillion in Q1 2024, just shy of the record set in Q3 2023, according to new data from CoreLogic.

    Average equity per borrower increased by $28,000 — to about $305,000 total — from a year earlier, according to CoreLogic. That’s up almost 70% from $182,000 before the Covid-19 pandemic, said chief economist Selma Hepp.

    About 60% of homeowners have a mortgage. Their equity equals the home’s value minus outstanding debt. Total home equity for U.S. homeowners with and without a mortgage totals $34 trillion.

    The jump in home equity is largely due to a runup in home prices, Hepp said.

    Many people also refinanced their mortgage earlier in the pandemic when interest rates were “really, really low,” perhaps allowing them to pay down their debt faster, she said.

    “For the people who owned their homes at least four or five years ago, on paper they’re feeling fat and happy,” said Lee Baker, founder, owner and president of Apex Financial Services in Atlanta.

    Baker, a certified financial planner and a member of CNBC’s Advisor Council, and other financial advisors said accessing that wealth is complicated by high borrowing costs, however.

    “Some options that may have been attractive two years ago are not attractive now because interest rates have increased so much,” said CFP Kamila Elliott, co-founder of Collective Wealth Partners and also a member of CNBC’s Advisor Council.

    That said, there may be some instances in which it makes sense, advisors said. Here are a few options.

    Home equity line of credit

    Grace Cary | Moment | Getty Images

    A home equity line of credit, or HELOC, is typically the most common way to tap housing wealth, Hepp said.

    A HELOC lets homeowners borrow against their home equity, generally for a set term. Borrowers pay interest on the outstanding balance.

    The average HELOC has a 9.2% interest rate, according to Bankrate data as of June 6. Rates are variable, meaning they can change unlike with fixed-rate debt. (Homeowners can also consider a home equity loan, which generally carry fixed rates.)

    For comparison, rates on a 30-year fixed-rate mortgage are around 7%, according to Freddie Mac.

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    While HELOC rates are high compared to the typical mortgage, they are much lower than credit-card rates, Elliott said. Credit-card holders with an account balance have an average interest rate of about 23%, according to Federal Reserve data.

    Borrowers can generally tap up to 85% of their home value (minus outstanding debt), according to Bank of America.

    Homeowners can leverage a HELOC to pay off their outstanding high-interest credit-card debt, Elliott said. However, they must have a “very targeted plan” to pay off the HELOC as soon as possible, ideally within a year or two, she added.

    For the people who owned their homes at least four or five years ago, on paper they’re feeling fat and happy.

    Lee Baker

    certified financial planner

    In other words, don’t just make the minimum monthly debt payment — which might be tempting because those minimum payments would likely be lower than a credit card, she said.

    Similarly, homeowners who need to make home repairs (or improvements) can tap a HELOC instead of using a credit card, Elliott explained. There may be an added benefit for doing so: Those who itemize their taxes may be able to deduct their loan interest on their tax returns, she added.

    Reverse mortgage

    A reverse mortgage is a way for older Americans to tap their home equity.

    Like a HELOC, a reverse mortgage is a loan against your home equity. However, borrowers don’t pay down the loan each month: The balance grows over time with accrued interest and fees.

    A reverse mortgage is likely best for people who have much of their wealth tied up in their home, advisors said.

    “If you were late getting the ball rolling on retirement [savings], it’s another potential source of retirement income,” Baker said.

    A home equity conversion mortgage (HECM) is the most common type of reverse mortgage, according to the Consumer Financial Protection Bureau. It’s available to homeowners who are 62 and older.

    Here's how to get an ultra low mortgage

    A reverse mortgage is available as a lump sum, line of credit or monthly installment. It’s a non-recourse loan: If you take steps like paying property taxes and maintenance expenses, and using the home as your primary residence, you can stay in the house as long as you like.

    Borrowers can generally tap up to 60% of their home equity.

    The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home, according to the CFPB.

    While reverse mortgages generally leave less of an inheritance for heirs, that shouldn’t necessarily be considered a financial loss for them: Absent a reverse mortgage, those heirs may have been paying out of pocket to help subsidize the borrower’s retirement income anyway, Elliott said.

    Sell your home

    Alexander Spatari | Moment | Getty Images

    Historically, the biggest advantage of having home equity was amassing more money to put into a future home, Hepp said.

    “That’s historically how people have been able to move up in the housing ladder,” she said.

    But homeowners carrying a low fixed-rate mortgage may feel locked into their current home due to the relatively high rates that would accompany a new loan for a new house.

    Moving and downsizing remains an option but “that math doesn’t really work in their favor,” Baker said.

    “Not only has their home gone up in value, but so has everything else in the general vicinity,” he added. “If you’re trying to find something new, you can’t do a whole lot with it.”

    Cash-out refi

    A cash-out refinance is another option, though should be considered more of a last resort, Elliott said.

    “I don’t know anyone right now who’s recommending a cash-out refi,” she said.

    A cash-out refi replaces your existing mortgage with a new, larger one. The borrower would pocket the difference as a lump sum.

    To give a simple example: let’s say a borrower has a home worth $500,000 and an outstanding $300,000 mortgage. They might refinance for a $400,000 mortgage and receive the $100,000 difference as cash.

    Of course, they’d likely be refinancing at a higher interest rate, meaning their monthly payments would likely be much higher than their existing mortgage, Elliott said.

    “Really crunch the numbers,” Baker said of homeowners’ options. “Because you’re encumbering the roof over your head. And that can be a precarious situation.”

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  • What’s In a Credit Card Number, And Will They Ever Run Out?

    What’s In a Credit Card Number, And Will They Ever Run Out?

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    There are a lot of credit cards out there and the number keeps constantly growing. Do you ever worry that they will run out of numbers one day. Maybe we’ll need to make them with 20 digits? Let’s look at what’s in a card number first and then see if they will run out any time soon.

    Credit Cards

    What’s In a Credit Card Number

    Credit card numbers guidelines are laid out by the International Organization for Standardization and the American National Standards Institute. Besides the numbers, they also set standards for the size and shape of credit cards. That’s why all cards are the same size and we don’t see any round credit cards.

    The first digit signifies the network and industry and it’s known as the Major Industry identifier. Visas start with a “4” for example, while Amex cards start with a “3.” That allows the merchants to identify who is ultimately responsible for payment of charges.

    Number Industry Likely Card Network
    1 Airlines  
    2 Airlines & Financial N/A
    3 Travel & Entertainment American Express
    4 Banking & Financial Visa
    5 Banking & Financial Mastercard
    6 Merchandising & Banking Discover
    7 Petroleum N/A
    8 Health Care & Telecommunications N/A
    9 Open for Assignment N/A

    The first digit, along with the five that follow it, are known as the Bank Identification Number, or BIN. They’re assigned to the individual payment networks (Visa, Mastercard, Amex), which then distribute them to card issuers (Bank of America, Wells Fargo, Citi etc.).

    Issuer Example Identification Number Meaning
    Chase 414720 Chase Signature Visa
    Bank of America 480011 Bank of America Visa Gold
    American Express 379741 American Express Credit
    Citi 542418 Citibank Platinum Mastercard
    Capital One 414709 Capital One Signature Visa
    Discover 601101 Discover Rewards
    Wells Fargo 446542 Wells Fargo Platinum Visa
    US Bank 403766 U.S. Bank Visa
    Barclays 559309 Barclays World Mastercard
    USAA 549123 USAA Platinum Mastercard

    The next nine digits on your card are given out to individual users by the issuers, and are unique to your account.

    The last digit on your credit card is known as the “check digit.” It’s calculated via a formula devised by mathematician Hans Peter Luhn. The formula uses the other 15-digits for the card and allows processors to instantly know whether a number is an actual credit card number, or whether it’s been entered incorrectly due to either error or fraud.

    Will We Run Out of Credit Card Numbers?

    There are indeed a lot of credit cards out there. Americans have about 3 on average. Then there are debit cards and virtual credit card numbers that use the same format. Data breaches make issuers replace cards quit often as well. So there’s a whole lot of numbers and they keep growing daily . So you might wonder if card numbers will ever run out.

    The answer is NO. You do not have to worry. “Each person in the world could have more than a million potential credit numbers” said Cris Poor, a mathematics professor at Fordham University. The potential 16-digit credit card combinations provide far more account numbers than could ever be used. 16-digit card numbers have 10 quadrillion possibilities NBC writes. That numbers is smaller when it comes to American Express cards, but it is still sufficient.

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    DDG

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  • Why young people keep getting caught in debt traps and how to break the cycle – MoneySense

    Why young people keep getting caught in debt traps and how to break the cycle – MoneySense

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    “They may see a slight increase in their income, and they think, ‘Oh, I just kind of hit the lottery, and now I’m going to spend like crazy,’” Schwartz said. “And it’s tough to change those behaviours after it’s been ingrained for a long period of time.”

    To prevent this from happening, track spending diligently—you can download apps for this purpose—and delay milestones such as moving out or getting a car if you can, Schwartz said. Build up an emergency fund in case you lose your income or suffer a financial setback, to avoid falling into serious debt.

    “If you have the opportunity when you’re young, when you’re not spending as much on rent, you’re not spending as much on food, if you can cut back on how much you’re socializing—that’s a great place to start to build up that reserve fund,” Schwartz said.

    Live within your monthly cash flow—using your debit card or cash—and develop a short-term austerity plan to make big strides on debt repayment, Terrio said.

    When to focus on debt repayment

    Summer months are tough for austerity because you want to socialize, he pointed out, but January through March are a good time to adhere to a severe budget. Up to 40% of your non-rent income should go to debt, Terrio said, noting short-term austerity is tolerable because it’s over quickly.

    Ultimately, the aim is to reach the tipping point when at least half of your debt payment is going to the principal—and the portion going to interest starts to slide. Never use an instalment loan, he added.

    “All these 36 to 48% interest loans that are $10,000—if you get one of those, you’re done,” Terrio said. “You’re never, ever getting out.”

    Once you’re free of debt, stay that way. Keep your credit limit low and turn down offers to increase it, Terrio said. If you move debt to a line of credit, stop using your credit card.

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  • Cash discounts, while still rare, are up over 60% from 2015. Here’s how much you can save

    Cash discounts, while still rare, are up over 60% from 2015. Here’s how much you can save

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    Ryanjlane | E+ | Getty Images

    Sometimes, it pays to pay with cash.  

    More merchants are offering a lower price to customers who use cash rather than credit card for a purchase. That means opting for paper over plastic may save you money in some cases.

    Just how much?

    Typically, cash discounts run about 2% to 4% on purchases, though savings can be higher, experts said.

    The share of cash payments with a discount is still low — in fact, only about 3% of all cash payments in 2022, according to data from the Federal Reserve Bank of Atlanta.

    However, that share is up more than 60% from 2015, when 1.8% of all cash transactions had a discount, Atlanta Fed data shows. While not yet the norm, cash incentives are likely to become more widespread, experts said.

    Meanwhile, other businesses add a surcharge when customers use credit cards for purchases. In such cases, paying with cash would also yield savings.

    Nearly 7 in 10 cardholders said a business has charged them extra for paying with a credit card, according to a recent LendingTree survey.

    The trend comes as consumers have steadily shifted away from using cash for purchases: Consumers made 18% of payments with cash in 2022, down from 31% in 2016, according to the Federal Reserve. Meanwhile, credit cards’ share grew to 31% from 18% during that period.

    More from Personal Finance:
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    People hate budgeting. Here’s how to reframe it
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    “Sometimes, it can make sense to just go ahead and pay cash,” said Matt Schulz, chief credit analyst at LendingTree.

    That may be the case even after accounting for credit card rewards, Schulz said. The largest general cash-back return on most credit cards is 2%, for example — a percentage often exceeded by cash discounts, he said.

    “If the merchant establishes a discount that’s high enough, even if you have the best rewards card in the world you may still end up paying less if you use cash,” said Adam Rust, director of financial services at the Consumer Federation of America, a consumer advocacy group.

    Why businesses give cash incentives

    Businesses that offer a break on cash purchases generally do so to reduce costs they incur for credit card transactions.

    Credit card-processing companies like Visa and Mastercard generally charge merchants 2% to 4% for each transaction, according to the National Retail Federation. These swipe fees are the second-highest cost for most businesses, behind labor costs, the trade group said.

    “The merchant is looking at your dollar and getting 98 cents in the end because you’ve chosen to use a card,” Rust said.

    Businesses can take two routes to save money: offering a discount for cash purchases (thereby sidestepping those card fees), or putting a surcharge on credit card transactions to offset those fees.

    Either way, such practices may yield lower prices for cash users.

    Surcharges aren’t legal in all states, though.

    As of May 2023, Connecticut and Massachusetts had outlawed surcharging, while Colorado and Oklahoma limited the maximum surcharge to 2%, according to the North Carolina Restaurant and Lodging Association.

    Visa also capped surcharges at 3% in April 2023, down from 4%, the trade group said.

    “It’s really important to understand what the cost of that surcharge is going to be, if there is one, before you go ahead and buy,” Schulz said.

    When to pay with cash

    Consumers are often swayed by cash incentives, even “significantly likely” to switch to cash payments “specifically because of cash discounts offered,” according to research by Joanna Stavins, a senior economist and policy advisor at the Federal Reserve Bank of Boston.

    When a cash discount is offered, the odds increase by 19.2% that a consumer who prefers noncash payments will instead opt to pay with cash, Stavins wrote in a 2018 paper. This research controls for transaction value and merchant type.

    In addition, small, independent businesses are more likely to offer cash discounts than big national chains, Consumer Federation of America’s Rust said.

    Sometimes, it can make sense to just go ahead and pay cash.

    Matt Schulz

    chief credit analyst at LendingTree

    Gas stations have long offered cash incentives to customers. But a rising number are now doing so, and “some major retailers are starting to implement the ability to do this in the future,” said Patrick De Haan, head of petroleum analysis at GasBuddy.

    The average cash discount has been about 5 cents to 10 cents per gallon, De Haan said.

    Meanwhile, more stations are also offering their own payment platform — like branded debit and credit cards — that yield even more savings than cash, he added.

    Discounts are also “very prevalent” when paying for health care, said Carolyn McClanahan, a certified financial planner and physician based in Jacksonville, Florida.

    McClanahan is also a member of the CNBC Financial Advisor Council.

    Some big-ticket spending — like tax bills and college tuition — is also generally best accomplished with cash, said Schulz. The IRS and many universities pass on payment-processing costs to the consumer. (In these cases, that might mean writing a check.)

    “There are certainly some bigger times when you should probably not use credit cards because of the fees involved,” he said.

    Credit cards sometimes have advantages

    There are times when credit cards have distinct advantages to cash, Rust said.

    For example, unlike cash, credit cards carry certain protections related to fraud and product returns, Schulz said.

    That’s why using a card may make more sense — even if there are fees involved — if consumers are first-time shoppers at a particular store, are buying something they may want to return in the future or if purchasing something fragile they’re having delivered, he added.

    Additionally, a credit card may be better for those who want to more closely track their spending, or just generally prefer the ease and convenience of using a card, Schulz said.

    However, consumers who have trouble paying off their credit card bills in full and on time each month may be better served via another payment method to avoid racking up interest charges, especially as those rates are near record highs.

    There’s also a workaround to both cash and credit cards: debit cards. Merchants generally can’t add a surcharge to debit card transactions.

    “By and large, debit cards can be a better and cheaper choice in instances where there’s a credit card surcharge,” Schulz said.

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  • How to become a contractor: The real costs – MoneySense

    How to become a contractor: The real costs – MoneySense

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    What do I need to know about managing my finances as a contractor?

    No matter what type of construction business you launch or buy, it’s important to have a bookkeeping system in place—between material expenses, insurance fees, client payments and more, you’ll have a lot of money going in and out each month. You’ll need a separate bank account and line of credit for your business, and it’s smart to have a credit card that’s solely for professional use.

    Pro tip: Choose a credit card for contractors

    Scotiabank has a small-business credit card that’s great for contractors: the Scotia® Home Hardware PRO Visa† Business Card, which can be used wherever Visa is accepted. Its variable interest rate is tied to Scotiabank’s prime rate, and credit limits of up to $500,000 are available (a limit high enough for larger, or multiple, renovations). The card’s interest rate and credit limit depend on whether the account is secured or unsecured, subject to approval and the security provided. The Scotiabank Prime Rate is the prime lending rate published from time to time by The Bank of Nova Scotia. (See the current Scotiabank Prime Rate.) The card has no annual fee, and it has an interest-free grace period of 21 days on new purchases.

    And then there are the rewards. You’ll earn one Scene+TM point for every dollar spent on eligible business purchases made at Home Hardware, which has more than 1,000 locations across Canada, or online at homehardware.ca.

    For every 10,000 Scene+ points you collect, you can redeem $100 at Home Hardware. If you’re regularly buying construction and renovation materials, you can accumulate points quickly—and get a lot of free stuff. Points can be redeemed for groceries, travel, gift cards and more. Plus, as your contractor business grows, you can add supplementary credit cards at no cost. These are great perks for entrepreneurs who want to minimize spending while getting their home renovation business off the ground.

    The business credit card also includes insurance protection on most newly purchased items charged to the account. Most newly purchased items are covered for 90 days by Purchase Security, and these items may be eligible for replacement, repair or reimbursement if they are stolen, damaged or destroyed by fire.

    Cardholders also have access to optional business loan protection insurance, Scotia Business Loan Protect, which can help cover business loan payments, or provide a lump sum of money, if you or another eligible key person can’t work for health reasons or passes away. Scotia Business Loan Protect is underwritten by The Canada Life Assurance Company (1-800-387-2671, www.canadalife.com) under a group policy issued to the Bank of Nova Scotia. All coverage is subject to the terms and conditions outlined in the Certificate of Insurance, which you will receive upon enrollment.

    You can apply for the Scotia® Home Hardware PRO Visa† Business Card online. Plus, until May 31, 2024, you can earn up to 15,000 bonus Scene+ points in your first year (that’s worth up to $150 in points value) by making at least $1,500 in eligible purchases at participating Home Hardware, Home Building Centre, Home Hardware Building Centre, Home Furniture locations in Canada and online at homehardware.ca in the first three months after opening your account. Cardholders also have access to online tools and services designed just for business owners. See Scotiabank’s website for full card details.

    Building a successful career as a home renovation contractor

    If you have the skills and motivation needed to become a contractor in Canada, you have the potential to build a lasting, rewarding career in home improvement. Over time, you might find that the Scotia® Home Hardware PRO Visa† Business Card is just as important to your contractor business as any other tool in your belt. After all, every dollar matters to your small business—so make them count.

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    Erin Pepler

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  • Federal judge blocks White House plan to curb credit card late fees

    Federal judge blocks White House plan to curb credit card late fees

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    A federal judge in Texas has blocked a new government rule that would slash credit card late-payment charges, a centerpiece of the Biden administration’s efforts to clamp down on “junk” fees. 

    Judge Mark Pittman of the U.S. District Court for the Northern District of Texas on Friday granted an injunction sought by the banking industry and other business interests to freeze the restrictions, which were scheduled to take effect on May 14. 

    In his ruling, Pittman cited a 2022 decision by the U.S. Court of Appeals for the Fifth Circuit that found that funding for the Consumer Financial Protection Bureau (CFPB), the federal agency set to enforce the credit card rule, is unconstitutional. 

    The regulations, adopted by the CFPB in March, seek to cap late fees for credit card payments at $8, compared with current late fees of $30 or more. Although a bane for consumers, the fees generate about $9 billion a year for card issuers, according to the agency.

    After the CFPB on March 5 announced the ban on what it called “excessive” credit card late fees, the American Bankers Association (ABA) and U.S. Chamber of Commerce filed a legal challenge. 

    The ABA, an industry trade group, applauded Pittman’s decision.

    “This injunction will spare banks from having to immediately comply with a rule that clearly exceeds the CFPB’s statutory authority and will lead to more late payments, lower credit scores, increased debt, reduced credit access and higher APRs for all consumers — including the vast majority of card holders who pay on time each month,” ABA CEO Rob Nichols said in a statement. 

    Consumer groups blasted the decision, saying it will hurt credit card users across the U.S.

    “In their latest in a stack of lawsuits designed to pad record corporate profits at the expense of everyone else, the U.S. Chamber got its way for now, ensuring families get price-gouged a little longer with credit card late fees as high as $41,” Liz Zelnick of Accountable.US, a nonpartisan advocacy group, said in a statement. “The U.S. Chamber and the big banks they represent have corrupted our judicial system by venue shopping in courtrooms of least resistance, going out of their way to avoid having their lawsuit heard by a fair and neutral federal judge.”


    “Junk fees” cost Americans billions every year

    01:48

    According to consumer advocates that support the CFPB’s late-fee rule, credit card issuers hit customers with $14 billion in late-payment charges in 2019, accounting for well over half their fee revenue that year. Financial industry critics say such late fees target low- and moderate-income consumers, in particular people of color.

    Despite Pittman’s stay on Friday, analysts said the legal fight over late fees is likely to continue, with the case possibly heading to the Supreme Court. 

    “We believe this opens the door for the CFPB to seek to lift the preliminary injunction if the Supreme Court rules in the coming weeks that Congress properly funded the agency,” Jaret Seiberg of TD Cowen Washington Research Group said in a report following the decision. “It is why we believe this is not the end of the fighting over whether the fee cut will take effect before full consideration of the merits of the lawsuit.”

    —With reporting by CBS News’ Alain Sherter

    Kate Gibson

    Kate Gibson is a reporter for CBS MoneyWatch in New York.

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  • Trump-appointed judge halts Biden administration credit card late fee cap

    Trump-appointed judge halts Biden administration credit card late fee cap

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    A former President Trump-appointed judge in Texas halted President Biden’s administration’s plan to decrease late fees on credit cards to $8.

    The new rule, which was set to take place next week, was stopped with US District Judge Mark T. Pittman issuing a preliminary injunction, a decision beneficial to credit card companies and big banks.

    The lawsuit against the Consumer Financial Protection Bureau (CFPB) was led by the US Chamber of Commerce. They alleged, along with other banking organizations, that the rule, finalized in early March, was in violation of several federal acts.

    CFPB’s rule, which was planned to be active on Tuesday, was designed to save more than $10 billion in late fees annually by dropping the amount from $32 to $8, according to CFPB. The average saving would sit at $220 per year and would affect over 45 million who were hit with late fees, according to the agency.

    “This ruling is a major win for responsible consumers who pay their credit card bills on time and businesses that want to provide affordable credit,” U.S. Chamber of Commerce Litigation Center Counsel Maria Monaghan said in a statement.

    “The CFPB’s attempted micromanagement would have raised costs for most credit card users and made it harder for businesses to meet consumers’ needs. The U.S. Chamber will continue to hold the CFPB accountable in court,” she said.

    Slashing credit card fees is one of the ways is one the Biden administration is trying to downsize the financial difficulties for Americans as they try to stay out of credit card debt after increased inflation.

    For the latest news, weather, sports, and streaming video, head to The Hill.

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  • Sure-Fire Ways To Keep Your Credit Card Usage From Spiralling Out Of Control | BankBazaar – The Definitive Word on Personal Finance

    Sure-Fire Ways To Keep Your Credit Card Usage From Spiralling Out Of Control | BankBazaar – The Definitive Word on Personal Finance

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    While a Credit Card is a wonderful tool for enhanced liquidity, irresponsible usage can wreak long-term damage. Here’s how to keep your card usage in check to maximise the benefits of owning a Credit Card.

    A Credit Card is a wonderful tool to get some extra liquidity. It gives you precious extra cash cover. Most importantly, it allows you to borrow money with an interest-free period. And then come the reward points. Credit Card companies offer various benefits and perks. For instance, a card lets you save money on air travel with reward points. Then, it may let you enjoy the lounge of an airport free of charge. Credit Cards are necessary, useful, and a responsibility.

    Irresponsible use of Credit Cards can create problems. After all, it is a loan with more flexibility. Try following the things in the list below, and you will be good to go.

    It’s an absolute blunder. Mostly, the minimum due is set at around 5% of the total bill amount. If you pay this, you’re not charged any late-payment fees. Credit Card providers also let the customer keep using the card. However, there is a catch here. It leads to a rapid surge in your debt levels. Fees on unpaid dues are steep and are charged daily.

    Credit Card fees are extremely high. They can rise to 40% per year. Whatever new transactions you make begin to draw additional charges as well. This would continue until you have paid off the full amount due, including any penalties that you have accumulated. You should then keep an eye on your Credit Score. A low score impacts your chances of applying for other financial products. Home Loan and Credit Card applications may be rejected due to lower credit scores.

    Additional Reading: 3 New Year’s Resolutions To Raise Your Credit Score In 2022

    Another classic mistake. When you withdraw cash using your Credit Card, you pay for it. Quite literally. These fees are charged from the time you withdraw money until you pay it back. Advance fees for cash go up to 3.5 percent, and the high finance charges range between 23 percent and 49 percent p.a. on cash withdrawals. If you withdraw cash from your Credit Card and are unable to repay it back quickly, it is likely that you will end up paying high fees for cash withdrawal. This option of accessing cash should be the last resort. In case of an emergency, there are various Personal Loan providers that offer instantaneous disbursal. Taking that route would cost you less and would get you an organised repayment scheme.

    YES! The reward points system is a big factor for someone to get a Credit Card. However, it can be counterproductive if you end up buying more than usual to ramp up your reward points. The attractive perk system may tilt you towards being irresponsible with the Credit Card.

    Maintaining financial discipline plays a big role here because it’s very important to not lose control when it comes to making purchases using Credit Cards. It is easy to give into the temptation of buying or getting more, but it’s crucial that we stay in control of our spending. The difference between Credit Cards helping or harming your cash flow is the discipline of setting a spending limit.

    Additional Reading: Pay No Heed To These Money Management Myths

    Doing this impacts your Credit Score negatively. It is generally considered an over-dependence on credit lines. It is recommended that you keep your credit utilisation ratio at around 40% of your total available credit limit. However, if you find yourself crossing that threshold too often, consider getting another Credit Card for some extra cover. You might be able to get a greater credit limit if you have many Credit Cards. One card issuer, for example, may offer you a credit limit of Rs. 2 lakh. However, if you have two Credit Cards from different issuers, your total credit limit might be Rs. 4 lakh.

    Some extra cash buffer is always a good thing to have, and the deal just gets sweeter when ample rewards are involved! Get the best Credit Card suited for your needs right here.

     

    Looking for something more?

    Personal Finance On The Go. Get The App!
    All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

    Copyright reserved © 2024 A & A Dukaan Financial Services Pvt. Ltd. All rights reserved.

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    Sourjyadipta M

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  • What happens if you get rejected for a credit card? – MoneySense

    What happens if you get rejected for a credit card? – MoneySense

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    Having a delinquency on your credit report can also make it more challenging to get approved for a credit card as banks see you as a high-risk applicant. Whether you’ve missed a payment or experienced a financial setback that led to your debt going to collections, having a delinquency on your record can significantly impair your credit score and make it very hard to get approved for most credit cards. So, if you do have a delinquency on your report, work to resolve the issue and settle any amounts in collections before applying for new credit.

    5. You’ve applied for a lot of credit recently 

    Applying for several credit cards in a short time can be a red flag. Lenders can view this as a sign of desperation for credit and worry that you’re borrowing more than you can handle, which could affect your ability to make the minimum payments. 

    In addition, every new credit-card application generates a hard inquiry that will lower your credit score. Hard credit inquiries account for 10% of your credit score so it is important to only apply for new credit products you need, one at a time. If you’re rejected for a credit card, wait between three and six months before reapplying to limit the impact of hard inquiries. 

    6. You have too much debt 

    If you already have a lot of debt through loans, mortgages and high credit-card balances, opening a new credit card could be seen as a warning sign to lenders that you are having problems paying down your existing balances. They might flag you at a higher risk of defaulting and reject your application. 

    When it comes to assessing your creditworthiness, lenders focus not just on the amount of debt you owe, but also look at how much of available credit you’re using. This is known as credit utilization, which makes up 30% of your credit score. Try to keep your utilization under 30% of available credit for maximum positive impact on your score. For example, if you have $10,000 in total credit available to you, try not to carry a balance of more than $3,000 at any given time. This shows lenders you can manage your credit responsibly.

    7. There’s an error on your credit file 

    If you’ve been turned down for a credit card (even if you have an excellent credit score), but have no debt and a clean payment history, it’s worth checking your credit report for errors. Incorrect payment details could be affecting your credit score—and, in turn, your eligibility to get approved for new credit. 

    You can identify this by reviewing your credit report regularly to see what’s documented and make sure the information is correct. For no charge, you can remove incorrect information by filing a dispute directly with the credit bureau.

    8. You don’t meet the age requirements

    In Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Prince Edward Island, you must be at least 18 years old to obtain credit. In all other provinces and territories, the minimum age is 19. If you don’t meet these age requirements, your credit card application will automatically be denied, so hold off until you are eligible. 

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    Doris Asiedu

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  • The Federal Reserve holds interest rates steady, offers no relief from high borrowing costs — what that means for your money

    The Federal Reserve holds interest rates steady, offers no relief from high borrowing costs — what that means for your money

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    The Federal Reserve announced Wednesday it will leave interest rates unchanged as inflation continues to prove stickier than expected.

    However, the move also dashes hopes that the Fed will be able to start cutting rates soon and relieve consumers from sky-high borrowing costs.

    The market is now pricing in one rate cut later in the year, according to the CME’s FedWatch measure of futures market pricing. It started 2024 expecting at least six reductions, which was “completely fantasy land,” said Greg McBride, chief financial analyst at Bankrate.com.

    That change in rate-cut expectations leaves many households in a bind, he said. “Certainly from a budgetary standpoint, not only is inflation still high but that is on top of the cumulative increase in prices over the last three years.”

    “Prioritizing debt repayment, especially of high-cost credit card debt, remains paramount as interest rates promise to remain high for some time,” McBride said.

    More from Personal Finance:
    Cash savers still have an opportunity to beat inflation
    Here’s what’s wrong with TikTok’s viral savings challenges
    The strong U.S. job market is in a ‘sweet spot,’ economists say

    Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest level in more than 22 years.

    The federal funds rate, which is set by the U.S. central bank, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

    Increasing inflation has also been bad news for wage growth, as real average hourly earnings rose just 0.6% over the past year, according to the Labor Department’s Bureau of Labor Statistics.

    Even with possible rate cuts on the horizon, consumers won’t see their borrowing costs come down significantly, according to Columbia Business School economics professor Brett House.

    “Once the Fed does cut rates, that could cascade through reductions in other rates but there is nothing that necessarily guarantees that,” he said.

    From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at where those rates could go in the second half of 2024.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

    Annual percentage rates will start to come down when the central bank reduces rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs aren’t likely to fall much, according to Matt Schulz, chief credit analyst at LendingTree.

    “If Americans want lower interest rates, they’re going to have to do it themselves,” he said. Try calling your card issuer to ask for a lower rate, consolidating and paying off high-interest credit cards with a lower-interest personal loan or switching to an interest-free balance transfer credit card, Schulz advised.

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    The average rate for a 30-year, fixed-rate mortgage is just above 7.3%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

    “Going forward, mortgage rates will likely continue to fluctuate and it’s impossible to say for certain where they’ll end up,” noted Jacob Channel, senior economist at LendingTree. “That said, there’s a good chance that we’re going to need to get used to rates above 7% again, at least until we start getting better economic news.”

    Auto loans

    Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

    The average rate on a five-year new car loan is now more than 7%, up from 4% in March 2022, according to Edmunds. However, competition between lenders and more incentives in the market lately have started to take some of the edge off the cost of buying a car, said Ivan Drury, Edmunds’ director of insights.

    “Any reduction in rates will be especially welcome as there is an increasingly higher share of consumers with older trade-ins that have sat out the market madness waiting for an automotive landscape that looks more like the last time they bought a vehicle six or seven years ago,” Drury said.

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected. But undergraduate students who took out direct federal student loans for the 2023-24 academic year are now paying 5.50%, up from 4.99% in 2022-23 — and any loans disbursed after July 1 will likely be even higher. Interest rates for the upcoming school year will be based on an auction of 10-Year Treasury notes later this month.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments. 

    Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5.5% — above the rate of inflation, which is a rare win for anyone building up a cash cushion, McBride said.

    “The mantra of higher-for-longer interest rates is music to the ears of savers who will continue to enjoy inflation-beating returns on safe-haven savings accounts, money markets and CDs for the foreseeable future,” he said.

    Currently, top-yielding certificates of deposit pay over 5.5%, as good as or better than a high-yield savings account.

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  • Switching Your Credit Card May Not Stop a Streaming Service’s Recurring Charges

    Switching Your Credit Card May Not Stop a Streaming Service’s Recurring Charges

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    Millions of Americans pay for streaming services, doling out anywhere from $5 to $75 a month. It’s a common belief that you can get out of recurring charges like this by switching your credit card. The streamers won’t be able to find you, and your account will just go away, right? You wouldn’t be crazy for believing it, but it’s a myth that switching a credit card will definitely stop your recurring charges.

    The TikTok Ban is Law. What Now?

    Nearly 46% of Americans opened a new credit card last year, according to Forbes, which means millions of Americans also canceled old ones. When you switch cards, these streaming services don’t just stop your service — they just start charging your new card. Granted, it might be easier to just cancel your subscription directly with a streamer like Netflix. There’s a largely hidden service that enables most subscription services to keep throwing charges at you indefinitely.

    “Banks may automatically update credit or debit card numbers when a new card is issued. This update allows your card to continue to be charged, even if it’s expired,” Netflix says in its help center, though it’s not alone in this feature.

    Most major card providers offer a feature that enables this, including Visa. In 2003, Visa U.S.A. started offering a new software product to merchants called Visa Account Updater (VAU), according to a 2003 American Banker article. The service works with a network of banks to create a virtual tracking service of Americans’ financial profiles. Whenever someone renews or switches a credit card within their bank, the institution automatically updates the VAU. This system lets Netflix and countless other corporations charge whatever card you have on file. It’s a seamless switch that allows the dollars to keep flowing toward corporate America, while you don’t have to lift a finger.

    “Visa understands the challenges faced by merchants when it comes to staying on top of account information changes,” Visa say in marketing materials to corporations. “VAU delivers updated cardholder account information in a timely, efficient, and cost-effective manner, benefiting all parties involved in the electronic payment process.”

    VAU was an instant success, quickly adopted by banks and corporations around the world. Visa’s service follows you whenever your issuer switches between any major credit card provider, whether it’s Discover, Mastercard, or American Express. However, if you close out an account entirely, or change to a different credit card provider yourself, the VAU will simply list your account as being closed.

    Some customers of Visa’s tracking service include Netflix, Amazon, Facebook, Google, and Disney, according to a 256-page list of the software’s adopters from 2022. VAU allows merchants to keep customers roped into their subscription services, but Visa also argues it helps customers.

    “Visa Account Updater (VAU) was built to help ease the burden on consumers of inputting a new account number and expiration date in recurring subscriptions,” said a Visa spokesperson in a statement to Gizmodo.

    Visa’s not entirely wrong about this. If your electricity or internet bill is tied to your credit card, you could be in a real bind if you forget to update your new card. However, practices like these can also keep people bound in endless cycles of payments that follow them everywhere.

    “The issuing bank determines whether to provide updated card information or to provide a closed account or contact cardholder advice through VAU,” said the spokesperson. “VAU only provides information to merchants at the direction of the issuing financial institution and only for merchants where the cardholder has already stored their payment credentials.”

    Origins of the Myth

    Before services like VAU popped up, switching your credit card was a pretty surefire way to get out of recurring charges, whether you wanted to or not. When Bank of America adopted VAU in 2003, it described the product as a solution for billing changes that had once left merchants with “unappealing choices.”

    “One would be that the merchant would shut off the customer’s service,” said a Bank of America executive in a 2003 press release. “Another would be that the merchant would continue the service but send the customer a nasty letter.”

    So VAU really came about with the onset of the internet. Practices like this have become increasingly popular in the Internet age. Subscription services have become easier to start, but increasingly difficult to stop. Recurring charges can truly follow you to the ends of the Earth unless you outright contact the company to stop them.

    Why It’s Pervasive

    Visa’s Account Updater is only really marketed to businesses, so most consumers have no idea it exists. I’d bet most people have no idea there’s a way to opt out of Visa’s credit card tracking service, and even fewer know they’re default opted in. It’s largely a hidden service to the average person, with no clear indicator from your bank or subscription service that you’re being tracked in this way.

    Credit cards are also widely regarded as a more anonymous way to move through the financial world. While they typically are more secure than using a debit card, make no mistake, banks are still tracking your every move. The VAU just allows them to coordinate with corporations to keep your financial information constantly up to date.

    The VAU undoubtedly offers some benefits to consumers. However, it’s important to understand why. The system reduces “churn” for corporations, and ensures you can keep paying them your dollars no matter what’s going on in your financial world. Banks make it effortless to keep paying these recurring charges. However, stopping them can be much harder. If you really want to stop a subscription, there’s still no substitute for calling up the company and canceling.

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    Maxwell Zeff

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  • Bank of America hurt by rising losses in credit cards, office loans

    Bank of America hurt by rising losses in credit cards, office loans

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    Bank of America’s credit card losses hit their highest levels since before the pandemic in the first quarter, the company reported Tuesday.

    Angus Mordant/Bloomberg

    Though Bank of America’s profits dipped in the first quarter as it built a larger cushion for bad credit cards and office loans, bank executives are optimistic they’ve pulled the appropriate levers to manage credit going forward.

    The Charlotte, North Carolina-based bank reported that its net charge-offs increased by more than 80% from the same period last year, from $807 million to $1.5 billion, as consumers struggled to pay off their credit card debt and turbulence in the commercial real estate sector continued. To manage the rising credit risk, Bank of America posted a $1.3 billion provision for credit losses, up from $931 million a year earlier.

    “All of this is still well within our risk appetite and our expectations, and it’s consistent with the normalization of credit we’ve discussed with you in prior calls,” Chief Financial Officer Alastair Borthwick said Tuesday on the bank’s quarterly earnings call.

    Bank of America reeled in net income of $6.8 billion last quarter, down from $8.2 billion in the first quarter of 2023, dampened in part by the credit-loss provision and a special assessment from the Federal Deposit Insurance Corp. related to bank failures last spring. The bank’s stock price fell Tuesday by 3.5% to $34.68.

    The company provided more information about its exposure to office loans, which has been a hot topic among regional banks that tend to have bigger office loan portfolios. Bank of America has about $17 billion in office loans, which is just 1.6% of its loan book. Some 12% of the bank’s office loans were classified as nonperforming in the first quarter, while 16 loans were charged off.

    Some $7 billion of the company’s office loans, or roughly 41% of its portfolio, are slated to mature this year. About half that figure will mature in 2025 and 2026, which implies the losses have been “front-loaded and largely reserved,” Borthwick said.

    “We’re using a continuous and thorough loan-by-loan analysis, and we’re quick to recognize impacts in the commercial real estate office space through our risk ratings,” Borthwick said on the company’s earnings call. “As a result … we’ve taken appropriate reserves and charge-offs.”

    Last month, Bank of America CEO Brian Moynihan told Bloomberg Television that problems in the commercial real estate sector will be a “slow burn.”

    Banks’ property loans have faced increased scrutiny in recent months, though most of the focus has been on regional lenders. Among the U.S. megabanks, Wells Fargo also reported an annual rise in charge-offs in its commercial real estate portfolio in the first quarter.

    Bank of America’s bigger credit troubles last quarter, however, were in the consumer sector, which accounted for two-thirds of its credit losses. Credit card charge-offs hit a rate of 3.62%, their highest level since a decline during the COVID-19 pandemic, when consumers were buoyed by government assistance.

    Over the next few quarters, it appears that BofA’s credit card losses may stay at existing levels, or even increase, said David Fanger, senior vice president of the financial institutions group at Moody’s Investors Service.

    “Credit card losses are above pre-pandemic levels, and that’s somewhat unexpected,” Fanger said. “It’s not unique to Bank of America, but it’s certainly something that bears watching. It is a headwind. It is now contributing pretty significantly to their provisions in the quarter.”

    Despite the rise in charge-offs, Fanger described the bank’s credit performance in the first quarter as “resilient.”

    During the quarter, Bank of America logged relatively stagnant loan growth. High interest rates have not only tamped down loan demand, but they have also driven up the cost of deposits.

    Yet elevated rates will positively impact asset repricing, Borthwick said.

    “Generally speaking, a higher-for-longer [rate environment] is probably better for banks,” he said. “The question will become, ‘Why are rates higher? What’s going on in the economy? Are we talking about inflation? Is it under control? Is it coming down?’” He went on to indicate that inflation does now appear to be under control.

    Moody’s Fanger argued that Bank of America’s positive view of the interest rate outlook implies that the company doesn’t anticipate significantly more credit losses.

    He also said that Bank of America’s net interest margin, which increased for the first time in four quarters, implies that the strain of higher rates on deposit costs is starting to steadily abate. The bank’s net interest margin of 2.5%, including global markets, was up from 2.47% in the fourth quarter of last year.

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    Catherine Leffert

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  • Texas judge moves CFPB’s $8 credit card late fee case to DC

    Texas judge moves CFPB’s $8 credit card late fee case to DC

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    A Texas Judge dealt a blow to the credit card industry by moving litigation challenging the Consumer Financial Protection Bureau’s $8 credit card late fee rule to the District of Columbia.

    In a blow to banks and credit card issuers, a Texas judge has agreed to move a lawsuit challenging the Consumer Financial Protection Bureau’s $8 credit card late fee rule to the District of Columbia.

    The ruling on Thursday by Judge Mark T. Pittman is a blow to the U.S. Chamber of Commerce and five other trade groups that sued the CFPB in early March to stop the late fee rule from going into effect on May 14. Pittman sided with the CFPB, which claimed the trade groups had engaged in “forum shopping” by filing the case in Texas in order to get a judge sympathetic to the industry. 

    “Venue is not a continental breakfast; you cannot pick and choose on a Plaintiffs’ whim where and how a lawsuit is filed,” Pittman wrote. “Federal courts have consistently cautioned against such behavior.”

    The rule could potentially wipe out $10 billion a year in late fee revenue, a massive hit to the industry which currently collects $14 billion a year in late fees. The rule would cut credit card late fees to $8 from $32.

    Pittman said there was “a strong interest” in having the dispute resolved in the District of Columbia and not Texas. 

    “A review of the record shows there are ten attorneys spanning five different firms or organizations representing the various Parties in this case. Of the ten, eight list their offices in the District of Columbia,” he wrote. “This means that any proceeding this Court conducts … will require all of Defendants’ counsel and two-thirds of Plaintiffs’ counsel to travel to Fort Worth—a task that will be charged to their clients or to the government. This would mean that taxpayers, including residents of Fort Worth, would foot an expensive bill for this litigation.”

    Earlier this week, Pittman wrote a blistering critique denying the trade groups’ emergency request to stop the CFPB’s rule from going into effect on May 14.

    The CFPB had asked the court for a change of venue by claiming that the Fort Worth Chamber of Commerce lacked standing to file in Texas. The bureau alleged that Synchrony Bank — a $106 billion-asset bank based in Stamford, Connecticut, and chartered in Utah — had only recently become a member of the Fort Worth chamber in order to file the lawsuit in the Northern District of Texas.  

    “The fact that there are customers of businesses in the Northern District of Texas that will potentially feel the effects of the Rule does not create a particularized injury in the Northern District of Texas, nor does it represent a substantial part of the events giving rise to the claim,” the judge wrote in the order. “Plaintiffs could find any Chamber of Commerce in any city of America and add them to this lawsuit in order to establish venue where they desire.”

    The trade groups filed the suit against the CFPB largely because the Fifth Circuit Court of Appeals ruled in 2022 that the CFPB is unconstitutional due to its funding structure. That case is being challenged before the Supreme Court, which is expected to rule on the CFPB’s funding by June. 

    Analysts said the Texas lawsuit has been a surprise from the get-go. 

    Isaac Boltansky, managing director and director of policy research at BTIG, said he viewed the case as “an execution failure mixed with bad luck rather than a strategic failure.”

    “There was an undeniable logic in filing this litigation in Texas given its ideological bent,” Boltansky wrote in a research note. But he added that “Judge Pittman’s denial order is the cheekiest order we have ever seen from the bench and our sense is that he is primarily motivated by a frustration with what he views as court shopping by the industry.”

    The CFPB’s late fee rule ended an automatic inflation adjustment for late fees and lowered the safe harbor amount to $8, from $32 for the first late fee and $41 for subsequent late fees. The rule only impacts the 30 to 35 largest credit card issuers including JPMorgan Chase, Citibank, Capital One, Bank of America and Discover. 

    “The credit card late fee lawsuit has been a rollercoaster, and it is not even one month old,” wrote Ed Groshans, senior research and policy analyst at Compass Point Research & Trading, in a research note.  

    The lawsuit was filed by the U.S. Chamber of Commerce, American Bankers Association, Consumer Bankers Association and three Texas trade groups: the Fort Worth Chamber of Commerce, Longview Chamber of Commerce and Texas Association of Business.

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  • The Fed hasn’t touched interest rates since July, but they’re still moving. What that looks like for credit cards, mortgages and savings accounts

    The Fed hasn’t touched interest rates since July, but they’re still moving. What that looks like for credit cards, mortgages and savings accounts

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    Hinterhaus Productions | Digitalvision | Getty Images

    Savings accounts

    Higher rates mean that consumers have to pay more to service their debt, but it also means that banks pay higher rewards to savers. It’s one of the silver linings to the current rate environment, said Ted Rossman, chief credit card analyst at Bankrate.

    “There’s also been remarkable stability at the top of this market,” Rossman said. “The highest savings rate right now is 5.35%.”

    That top rate is considerably higher than the national average for savings rates overall, which has been just below 0.6% for the past two months. But even that overall average is more than double its level of 0.23% 12 months ago.

    Rossman added that plenty of high-yield savings accounts, mostly available online, are still paying close to or even above 5%. These kinds of accounts keep money easily accessible while earning solid returns and are great options for emergency savings.

    Certificates of deposit

    Interest rates on savings accounts are higher than they’ve been in decades, but there has been recent softening in returns on certificates of deposit, data from the U.S. Federal Deposit Insurance Corp. shows.

    The average yield on a 12-month certificate in March 2024 was 1.81%, down slightly from its high in December and January, according to the FDIC.

    Despite the dip, CDs are good savings vehicles that avoid risk but still provide a return if you’re willing to tie up your money for a set period of time, Rossman said. The current environment will likely remain good for savers until the Federal Reserve initiates its rate cuts.

    “There’s been remarkable stability at the top of this market, even though we expect cuts are coming,” he said. “These shorter-term rates don’t tend to move until the Fed moves.”

    Until then, savers should take full advantage.

    Credit cards

    The flip side to the positive environment for savers is the expensive credit card market: Consumers carrying balances on their cards face historically high rates. The average credit card rate has been well above 20% for the past 12 months and will continue to stay there for some time, Rossman said.

    “Sometimes rates bounce around a little bit if offers come on and off the market,” Rossman said, but “we’ve plateaued since that last rate hike as of late July.”

    The key for consumers to remember is that credit card debt is expensive, and that will still be true even after the rate cutting starts, he said.

    “The Fed is not going to come to your rescue on credit card rates,” Rossman said. “Even if rates fell a couple of points in a couple of years, they’d still be high.”

    His best advice for consumers is to prioritize paying off credit card debt, if possible with the help of a balance transfer card, which lets consumers carry balances from one credit card to another for a low fee and an extended period of no or low interest.

    The Fed is not going to come to your rescue on credit card rates.

    Ted Rossman

    Senior industry analyst, Bankrate

    Rossman added the offers from balance transfer cards continue to be very favorable with low fees and generous repayment windows.

    “The balance transfer market has been remarkably stable and strong,” he said. “It speaks to a strong job market and the strong economy. People are paying these bills back,” despite the fact that more consumers, on average, are carrying more expensive debt.

    Mortgage rates

    While savings and credit card rates are very sensitive to maneuvers from the Federal Reserve, the area that might see the most movement is housing.

    “Unlike some of these other products, mortgage rates tend to move in advance of the Fed because they tend to track 10-year Treasurys,” Rossman said. “It’s more about investor expectations for the Fed and for economic growth.”

    That’s reflected in the data. Mortgage rates peaked in October 2023 at about 8%, followed by a steady decline. And after a brief jump in February, they seem to be settling back to where they were at the beginning of 2024, when a 30-year fixed rate mortgage was about 6.6%.

    “We think there’s a good chance that the average 30-year fixed rate mortgage could be around 6% by the end of the year,” Rossman said, which would be a much needed reprieve for a highly competitive housing market that is still undersupplied.

    High mortgage rates have kept many sellers — who are locked into lower rates from years’ past — from putting their homes on the market. Lower rates could get them to list, Rossman said.

    “The closer we get to 6% and then eventually into 5% territory, that gets some people off the fence and they list their home and then inventory improves,” he said. “Then that gives some some relief on the price side for would-be buyers.”

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  • The Federal Reserve holds interest rates steady, with no immediate relief for consumers from sky-high borrowing costs

    The Federal Reserve holds interest rates steady, with no immediate relief for consumers from sky-high borrowing costs

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    The Federal Reserve announced Wednesday it will leave interest rates unchanged, delaying the possibility of rate cuts as well as any relief from sky-high borrowing costs.

    Overall, expectations that the Fed is pulling off a soft landing have increased, but that offers little consolation for Americans with high-interest debt.

    And now there may be fewer interest rate cuts on the horizon after hotter-than-expected inflation reports sent the message that “we are moving in the right direction, but we’re not there yet,” said Greg McBride, chief financial analyst at Bankrate.com.

    For consumers, that means “a very slow downward drift in savings rates but no material change in borrowing costs for credit cards, auto loans or home equity lines of credit,” McBride said.

    More from Personal Finance:
    Here’s when the Fed is likely to start cutting interest rates
    Nearly half of young adults have ‘money dysmorphia’
    Deflation: Here’s where prices fell

    Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest level in more than 22 years.

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

    Even with some rate cuts on the horizon later this year, consumers won’t see their borrowing costs come down significantly, according to Columbia Business School economics professor Brett House.

    “The costs of borrowing will remain relatively tight in real terms as inflation pressures continue to ease gradually,” he said.

    From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at where those rates could go in 2024.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

    With most people feeling strained by higher prices, balances are higher and more cardholders are carrying debt from month to month compared with last year.

    Annual percentage rates will start to come down when the Fed cuts rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, according to Ted Rossman, Bankrate’s senior industry analyst.

    “If the average credit card rate falls a percentage point from its current record high of 20.75%, most cardholders would barely notice,” he said.

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    But rates are already lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is near 7%. That’s up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

    Doug Duncan, chief economist at Fannie Mae, expects mortgage rates will end the year at 6.4%, but that won’t provide much of a boost for would-be homebuyers.

    “The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” Duncan said. “The problem is still supply. If rates come down and it ramps up demand and there’s no supply, the only thing that happens is that home prices go up.”

    Auto loans

    Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

    The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.

    Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments. 

    Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up an emergency savings account, McBride said.

    Since those rates have likely maxed out, this is the time to lock in certificates of deposit, especially maturities longer than one year, he said. “There’s no incentive to hold out for something better because that’s not the way the wind is blowing.”

    Currently, one-year CDs are averaging 1.73%, but top-yielding CD rates pay over 5%, as good as or better than a high-yield savings account.

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  • The Federal Reserve may not cut interest rates just yet, here’s what that means for your money

    The Federal Reserve may not cut interest rates just yet, here’s what that means for your money

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    Economists expect the Federal Reserve to leave interest rates unchanged at the end of its two-day meeting this week, even though many experts anticipate the central bank is preparing to start cutting rates in the months ahead.

    In prepared remarks earlier this month, Federal Reserve Chair Jerome Powell said policymakers don’t want to ease up too quickly.

    Powell noted that lowering rates rapidly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.

    But in the meantime, consumers won’t see much relief from sky-high borrowing costs.

    More from Personal Finance:
    Here’s when the Fed is likely to start cutting interest rates
    Nearly half of young adults have ‘money dysmorphia’
    Deflation: Here’s where prices fell

    In 2022 and the first half of 2023, the Fed raised rates 11 times, causing consumer borrowing rates to skyrocket while inflation remained elevated, and putting households under pressure.

    With the combination of sustained inflation and higher interest rates, “many consumers are experiencing higher levels of economic stress compared to one year ago,” said Silvio Tavares, CEO of credit scoring company VantageScore.

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    Even once the central bank does cut rates — which some now expect could happen in June — the pace that they trim is going to be much slower than the pace at which they hiked, according to Greg McBride, chief financial analyst at Bankrate.

    “Interest rates took the elevator going up; they are going to take the stairs coming down,” he said.

    Here’s a breakdown of where consumer rates stand now and where they may be headed:

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

    With most people feeling strained by higher prices, balances are higher and more cardholders are carrying debt from month to month compared to last year.

    Annual percentage rates will start to come down when the Fed cuts rates but even then, they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, McBride said.

    “If the Fed cuts rates twice by a quarter point, your credit card rate will fall by half a percent,” he said.

    Mortgage rates

    Fifteen- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy. But anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    Rates are already significantly lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is around 7%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

    “Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”

    Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate and those rates remain high.

    “The reality of it is, a lot of borrowers are paying double-digit interest rates on those right now,” McBride said. “That is not a low cost of borrowing and that’s not going to change.”

    Auto loans

    Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

    The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.

    Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”

    Federal student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments. 

    Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up an emergency savings account, McBride said.

    Since those rates have likely maxed out, this is the time to lock in certificates of deposit, especially maturities longer than one year, he advised. “There’s no incentive to hold out for something better because that’s not the way the wind is blowing.”

    Currently, one-year CDs are averaging 1.73% but top-yielding CD rates pay over 5%, as good or better than a high-yield savings account.

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