Money Management

Interest rates are holding steady for now, but does that mean a recession is no longer in the cards? Read on to get the scoop. 

If it seems like you can’t read the news without hearing the word “recession” thrown into the mix, it’s because many financial experts remain worried about a near-term economic decline. And the Federal Reserve’s interest rate policies are no doubt playing a role in that line of thinking.

The Fed has raised interest rates 10 times since March 2022 in an effort to cool the pace of inflation. In June, however, the Fed made the decision to pause its interest rate hikes. But that may not be enough to prevent a widespread economic downturn.

Why a one-time pause on rate hikes may not provide much relief

What do interest rate hikes have to do with a recession? A lot, actually.

The Fed has raised its federal funds rate 10 times since last March, which has made it more expensive for banks to borrow from each other on a short-term basis. That, in turn, has resulted in banks and lenders passing higher borrowing costs on to consumers.

These days, it costs more money to carry a credit card balance, sign a personal loan, or borrow to buy a car. And until the Fed lowers its benchmark interest rate, consumers might continue to struggle.

The fear, however, is that persistently higher borrowing costs will drive consumers to start spending less money. If broad spending declines to a notable degree, it could be enough to fuel a recession. And that might happen even if the Fed opts not to raise interest rates at its next meeting this year.

That’s also a big “if.” In May, annual inflation, as measured by the Consumer Price Index, was at 4%. But the Fed has made it clear that it will continue to target 2% inflation, which is the level it feels is most conducive to economic stability on a long-term basis. And while 4% annual inflation might seem like it’s close to the Fed’s target, without a nudge in the form of more rate hikes, the central bank may not get what it wants.

How to gear up for a recession

While the Fed’s recent rate hike pause might offer some relief to consumers in need of personal loans, the reality is that it’s probably not enough to avoid a recession. This doesn’t mean that we’re guaranteed to experience a downturn this year. But it’s something consumers should prepare for.

A good way to do so is by boosting your savings account balance. Recessions tend to lead to an uptick in unemployment. Having solid emergency savings — ideally, enough money in the bank to cover at least three full months of essential expenses — is a good way to get through a period of joblessness unscathed.

Consumers should also avoid taking on large purchases now, and instead conserve cash. Besides, it’s clearly not a very good time to finance a big purchase, so even those with full emergency funds may want to consider holding off.

The Fed itself said in the spring that it expects a recession to strike in 2023, albeit a mild one. Although that’s not set in stone, it’s a possibility everyone should brace for — even if the central bank doesn’t end up raising interest rates again this year.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Have spare cash? Read on to find a great home for it. 

Many people are spending down their paychecks month after month due to persistent inflation. And so unfortunately, a large number of consumers are not in a position where they have to think about where to put their extra money.

But you might be in a very different and more fortunate position. And if so, here are some places to think about putting your money this July.

1. A high-yield savings account

Despite a recent pause, the Federal Reserve has been steadily raising interest rates since March 2022. The downside there is that it’s made consumer borrowing more expensive. The upside, however, is that it’s now possible to snag a competitive interest rate on money in a high-yield savings account — without taking on any risk.

Many savings accounts are paying upward of 4% right now, which is a great deal considering that you won’t have to worry about losing out on any of your principal deposits (assuming you’re at an FDIC-insured bank and you’re not socking away more than $250,000). And while it’s a good idea to monitor savings account rates, since they’re not set in stone, right now, banks are paying pretty generously across the board.

2. A short-term CD

While savings accounts are offering generous interest rates these days, those rates are subject to change. On the other hand, when you open a certificate of deposit (CD), you’re guaranteed the same interest rate for its entire term, whether it’s six months, 12 months, or two years. And many CDs these days are paying around 5% for relatively short terms.

Now one thing you should know is that penalties apply when you cash out a CD early. For this reason, you may want to stick to a shorter-term CD, like a six-month CD. Doing so not only means getting access to your money sooner should you need it, but also, opening the door to the possibility of an even better rate should banks continue to pay generously well into 2024.

3. A brokerage account

You might snag 4% to 5% on your money risk-free by keeping it in a savings account or CD. But over the past 50 years, the stock market has delivered an average annual 10% return (before inflation), as measured by the S&P 500. So if you’re all set on emergency savings and are looking to potentially snag twice the return you might get from a bank, then it pays to invest your money in a brokerage account.

Of course, you will need to accept the fact that buying stocks means taking on some risk. And also, it’s something you should commit to on a long-term basis.

To put it another way, investing in stocks is very different from putting money into savings or a CD. With a savings account, you can pull your deposits out at any time. With a CD, you can potentially take your money and run after six months, a year, or whatever term you sign up for.

When you invest in a brokerage account, it’s best to assume you’ll keep your stocks for many years so they can appreciate in value. But let’s put it this way: If you were to invest $1,000 in stocks this July and leave your portfolio alone for 25 years, you’d grow your $1,000 into almost $11,000, assuming that same average annual 10% return.

4. An HSA

Healthcare is an expense you might face at any stage of life. So if your health insurance plan is compatible with a health savings account (HSA), it pays to fund one. Not only will you get a tax break on the money you put in, but you’ll also get the option to enjoy tax-free investment gains in an HSA and tax-free withdrawals for medical spending.

This year, your health insurance plan must have a minimum deductible of $1,500 for self-only coverage, or $3,000 for family coverage, to be compatible with an HSA. Your plan must also have an out-of-pocket maximum of $7,500 for individual coverage or $15,000 for family coverage.

These numbers will be changing in 2024. But so might your health plan. So for now, see what your current insurance entails and whether an HSA is an option for you.

It pays to put any extra money you have to work this month. Consider any or all of the above choices to make the most of your spare cash.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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While overdraft fees are still being charged by some banks, others are reducing these fees or getting rid of them. Learn why banks are making fee changes. 

It’s not uncommon for banks to charge extra fees to bring in more revenue. Overdraft fees are bank fees that can quickly eat away at your bank account balance. But many banks are shifting their fee practices by reducing overdraft fees or ditching them for good. This is excellent news for consumers’ personal finances. We’ll explain why overdraft fees are finally falling.

A closer look at overdraft fees and the history behind them

An overdraft fee is a fee that’s charged when you don’t have enough cash in your checking account to cover a transaction. If you write a check or swipe your debit card and the payment processes when you don’t have enough money in your bank account, your bank may charge this fee. In exchange for the fee, your bank will allow the payment to go through.

According to the Federal Reserve Bank of St. Louis, overdraft fees were introduced by banks in the 1990s. While it was marketed as a convenience to consumers, this practice offered an easy way for banks to boost their profits. For years, banks made billions from overdraft fees.

The Consumer Financial Protection Bureau (CFPB) estimates that banks and credit unions collected nearly $15.5 billion from their customers through overdraft and non-sufficient funds fees in 2019. Unfortunately, these fees are often paid by consumers in vulnerable financial situations. Extra fees like this can make an already challenging financial situation much worse.

Overdraft fees are being reduced or eliminated

There’s good news: Many banks are altering their overdraft fee practices. One reason is the mounting public pressure surrounding the practice. The CFPB and members of Congress have continued to put pressure on banks to reconsider this practice. Another reason some banks are lowering these fees is to be more competitive.

Now that some banks have decided to eliminate overdraft fees, consumers have more options. They can leave their existing banks that still charge overdraft fees and open a new account elsewhere where these fees are no longer being charged.

Ally Bank, Citi, and Capital One are some companies that have chosen to get rid of overdraft fees. Other banks are reducing these fees so they’re more reasonable or have put a cap on how many times a customer can be charged these fees each day.

Huntington Bank reduced its overdraft fees to $15 per occurrence. The company also established a limit of three overdraft fees per day, and doesn’t charge these fees unless an account is overdraft for more than $50.

Bank of America is another bank that has changed how it handles this fee. In 2022, the bank reduced overdraft fees from $35 to $10. The bank won’t charge more than two overdraft fees per day. Additionally, some Bank of America accounts no longer impose overdraft fees.

Don’t neglect to review fees before opening a bank account

While there has been significant progress regarding these fees, it’s important to remember that many banks still charge overdraft fees. Whether you’re considering opening a new checking account or savings account, carefully reviewing all fees is essential.

Even if a bank no longer charges overdraft fees, it may impose other checking account fees, like monthly maintenance fees. Many banks allow customers to avoid maintenance fees by meeting certain conditions, like enrolling in direct deposit or meeting minimum balance requirements.

Knowing about fees like this before opening a new bank account is critical to avoid surprise charges. If you’re looking for a new bank account, check out The Ascent’s 2023 bank and bank account awards list to learn more about the top banks and bank accounts.

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Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Ally is an advertising partner of The Ascent, a Motley Fool company. Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.

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If you shop on Amazon, you may be missing out on a free perk available to many members. Find out how to access ad-supported movies and shows for free. 

Many of us do at least some of our shopping on Amazon. Whether you’re a Prime member or not, there’s an Amazon perk that you may be missing out on. All shoppers can enjoy thousands of ad-supported streaming content options through Amazon Freeve. This may be a resource to consider if you’re looking for additional entertainment options. Learn more about the service to decide if adding this streaming service to your regular rotation is worthwhile.

Introducing Amazon Freeve

Amazon Freeve is an ad-supported streaming service available to shoppers in the United States, United Kingdom, and Germany. The service, formerly known as IMDb TV, was first introduced in 2019. If you have an Amazon account and live in those areas, you can watch thousands of movies and shows for free.

While you’ll have to view some ads, accessing hours of additional streaming content can be a win for your checking account balance. What kind of content can you find on this lesser-known on-demand streaming platform? You’ll find popular shows, movies, documentaries, and more. Amazon Freeve originals are also available to watch.

You can access Freeve content in many ways. A popular option is to use the Prime Video app. Another way is to view content through the standalone app on your favorite devices like Xbox, PlayStation 5, iOS and Android mobile phones, and many smart TVs. You can also access Freeve using your internet browser. All you have to do is log in to your Amazon account.

A 2023 Leichtman Research Group, Inc. study found that 86% of U.S. households have at least one streaming video service. The same study found that 50% of respondents have four or more streaming video services. How many streaming services do you use in your household?

Paying for several streaming platforms at once can significantly impact your personal finances. Since you don’t need to invest in an Amazon Prime membership to use Freeve, you may want to check out this free platform to determine if it can replace one of your paid subscriptions.

Freeve isn’t the only free streaming services worth trying

If you’re on a tight budget while you work to build your savings or pay off credit card debt, you may be looking for additional free streaming content to add to your list of entertainment options. For those who don’t mind advertisements, several other free resources are available.

Here are some free streaming platforms to check out:

Crackle: Crackle is an ad-supported service with TV shows, movies, and original programming. You can stream on mobile devices, video game consoles, and the web.Pluto TV: Pluto TV offers ad-supported content to all. Viewers can stream 250+ TV channels and thousands of on-demand movies and shows. You can access Pluto TV on mobile devices, the web, and Smart TVs.Tubi: Tubi is a free ad-supported platform with over 50,000 shows and movies. You can download the mobile app on your favorite devices, including your smart TV.

Paid subscriptions impact your bank account balance

Paying for streaming content can get expensive quickly, especially if you invest in multiple paid platforms simultaneously. If you’re working hard to boost your savings account balance, you may need to decide if it’s time to pause some of your paid subscriptions to use free services like these.

But if you like to spend your money on entertainment, it may be worth it to make room in your monthly budget for the paid streaming subscriptions. However, it’s essential to be sure you’re using the services you pay for so you’re not wasting your money.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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