Money Management

The Fed has raised interest rates yet again. Read on to see what that means for you. 

Rampant inflation has been a problem for consumers for roughly two years. And the Federal Reserve is intent on doing something about it.

The Fed has been raising its benchmark interest rate since early 2022 in an effort to bring inflation levels down. Most recently, the Consumer Price Index, which measures changes in the cost of goods and services, was up 5% on an annual basis. But the Fed wants to see inflation drop down to 2%. It’s long maintained that this level of inflation is needed to promote a stable economy.

Because the Fed still has work to do on battling inflation, on May 3, it made the decision to raise its benchmark interest by 0.25% for the third time this year. And while that’s not the best news for consumers looking to borrow money, it’s great news for consumers with money in savings.

Savers stand to come out ahead

The Federal Reserve does not dictate what interest rates banks offer consumers individually. Rather, the Fed oversees the federal funds rate, which is what banks charge each other for short-term borrowing.

When the Fed raises its benchmark interest rate, it tends to drive the cost of products like auto and personal loans up. But it also tends to lead to higher interest rates for savings accounts. So in light of the latest rate hike, consumers with cash in the bank could end up earning more interest on their money going forward.

It’s a good time to boost your savings

During periods when banks aren’t paying much interest, it can be hard to motivate yourself to keep cash in a savings account. But right now, many high-yield savings accounts are already paying upward of 4%, and that has the potential to climb even more.

Remember, deposits at FDIC-insured banks are protected for up to $250,000 per person. So if you like the idea of earning a risk-free 4% or more on your money, then it pays to bump up your savings if you can.

But that’s not the only reason to give your savings a boost right now. The Fed has also been warning that a mild recession is likely to hit later on in 2023.

Now clearly, a mild recession is better than a major one. But the Fed also warns that it could take the U.S. economy two years to recover from even a mild downswing. So the more cash reserves you have, the more protection you buy yourself in the event of getting laid off from your job.

All told, having extra money in the bank is a very good thing right now. And if you don’t have enough savings to cover three months of essential bills, it’s especially important that you try to ramp up in case economic conditions decline more quickly than anticipated.

What about CD rates?

CD rates, like savings account rates, are likely to climb following the Fed’s latest interest rate hike. Now’s a good time to capitalize on higher CD rates, but make sure to keep your emergency fund in a regular savings account so you have access to that money when you need it. If you have funds beyond that, you can open a CD, but you may want to stick to one with a shorter term to give yourself more flexibility.

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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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Wondering how your tax refund stacks up this year? Read on to find out. 

At the start of the 2023 tax season, filers were warned to gear up for lower refunds than what they got in 2022. The logic was that since the pandemic-era tax benefits that applied to 2021 went away in 2022, refunds would be lower.

Meanwhile, data shows that those predictions were pretty spot-on. As of the week ending April 21, the average IRS refund issued was $2,753, marking a decline of 8.6% from the same time the previous year.

The IRS is still in the process of going through tax returns and issuing refunds. So it’s too soon to get a pulse on what the average tax refund for all of 2023 is. But no matter what your refund amounts to, it’s important to make the most of that money. Here’s how.

1. Build or boost your emergency fund

A big reason the aforementioned pandemic-era tax benefits didn’t apply in 2022 was that the economy had improved quite a lot by the start of last year. And right now, the same holds true — the economy seems to be in a good place.

But things could change later this year, and experts are still warning about a potential recession. So it’s a good idea to do what you can to boost your savings account in case you wind up losing your job in the midst of an economic decline.

At a minimum, you should aim for an emergency fund with enough money to cover three months of essential expenses. And if you can aim even higher so you have enough cash to cover six to 12 months of bills, even better. Your tax refund could get you closer to whatever emergency fund goal you decide to set for yourself.

2. Get rid of high-interest debt

Owe money on credit cards? Now’s a good time to whittle down those balances. If a recession hits, the last thing you’ll want are costly debt payments hanging over your head.

Plus, credit card debt can be costly due to the high interest rates that tend to apply. So even if you’re not particularly worried about losing your job, it’s still a good idea to use your refund to knock out high-interest debt.

3. Invest for your future

Maybe you’re good on emergency savings and don’t have high-interest debt to contend with. If that’s the case, you have a prime opportunity to use your tax refund to better your future.

Consider putting your tax refund into an IRA account and investing it for retirement. Or if you want to invest with more flexibility, put that money into a regular brokerage account and load up on stocks and other assets that have the potential to grow your refund into a larger sum over time.

4. Invest in your career

Being great at your job won’t necessarily spare you from getting laid off if a recession hits. But the more value you bring to the table, the lesser your chances of being let go. So if you’re sitting on a nice tax refund, consider using it to further your career.

You can spend that money to go back to school, take a course that teaches you new skills, or attend professional conferences your employer won’t pay for. You can also consider using that money for new equipment if you run your own business or are self-employed.

Just because tax refunds are down this year compared to 2022 doesn’t mean you’re not sitting on a nice IRS payday right now. And the more savvy you are with that money, the better it’s apt to serve you.

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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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The Federal Reserve just raised interest rates by 0.25% for the third time this year. Read on to see what that might mean for you. 

What happened

On May 3, the Federal Reserve raised its benchmark interest rate by 0.25%. It’s the third 0.25% rate hike to be implemented this year as the central bank aims to cool inflation.

So what

Inflation has been a problem for consumers since mid-2021. In June 2022, the Consumer Price Index (CPI), which measures changes in the cost of consumer goods and services, was up 9.1% on an annual basis. More recently, the CPI dropped down to 5% annually in March.

But the Fed has made it clear that it wants to see 2% inflation, which the CPI is nowhere close to. The central bank has long held that 2% inflation is conducive to a stable economy. And so the latest rate hike’s purpose is to get annual inflation closer to that mark.

In its most recent Federal Open Market Committee statement, the Fed said, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent.”

Now what

The Fed’s most recent interest rate hike, which represents 10 consecutive rate hikes since early 2022, brings the federal funds rate — the rate banks charge each other for short-term borrowing — to its highest level in over 15 years. But borrowing won’t only get more expensive for banks — it might soon get costlier for consumers as well.

When the Fed raises its benchmark interest rate, it tends to drive the cost of consumer borrowing up on a whole. Borrowers might soon face even higher rates for products that include personal loans, home equity loans, and auto loans.

Higher interest rates could also be a problem for consumers carrying variable-interest debt, since the interest rate on those debts now has the potential to climb. This includes those with credit card and HELOC balances.

On a positive note, the Fed’s latest rate hike could lead to even higher interest rates for savings accounts and CDs. In fact, a big reason interest rate hikes are effective at slowing the pace of inflation is that consumers tend to borrow less when loans cost more. They also tend to be more motivated to stockpile extra cash in the bank when savings account and CD rates are generous.

It’s going to take a decline in consumer spending to bring inflation down to 2%, where the Fed wants it to be. Unfortunately, a steep decline in spending could be enough to fuel a near-term recession, which is something many financial experts are still warning about.

In fact, the Fed itself said recently that it anticipates a mild recession later on in 2023, so consumers should aim to boost their cash reserves to gear up for a period of economic decline. The good news is that they’ll get to earn more money on the cash they stockpile in the bank.

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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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The U.S. dollar’s percentage of the world’s foreign reserves has slowly declined the past 20 years. Read on to learn why it matters. 

The U.S. dollar has been a dominant currency around the world for 80 years. It’s long been the go-to for international trade and a symbol of American power. In 2000, the U.S. dollar represented about 70% of the global reserves.

While the U.S. dollar is still the dominant currency, its hold on the global economy has been slipping, declining to 60% today. When the U.S. dollar isn’t worth as much compared to other currencies, countries tend to hold less of it in their reserves. This is because the value of their reserves in other currencies goes up. The opposite happens when the U.S. dollar is strong.

If the dollar’s power continues to decline, this shift can have some significant implications for U.S. consumers. Here is what the changing role of the dollar means for you.

The cost of imports may change

If the dollar’s power continues to decrease, the cost of imports may go up. This is because when the currency is weaker, it takes more dollars to buy the same amount of goods from other countries. This could lead to inflation, making goods more expensive for U.S. consumers. On the other hand, if the dollar becomes stronger, it could lead to deflation, making imports cheaper. Either way, it’s important to keep an eye on the value of the dollar when buying goods from overseas.

U.S. exports may become more competitive

While a weaker dollar can have negative effects on U.S. imports, it can also make U.S. exports more competitive. This is because it will take fewer foreign currencies to buy U.S. goods, making them more appealing to foreign buyers. This could lead to a boost in U.S. exports, which is good news for American businesses and the economy as a whole.

Travel may become more expensive

As the dollar’s power declines, traveling abroad may become more expensive. This is because it will take more dollars to buy the same amount of foreign currency, such as euros or pounds. If you’re planning on traveling overseas, it’s important to factor in the exchange rate when budgeting for your trip. You may want to consider traveling to countries where the dollar is stronger, using a travel rewards credit card, or holding off on travel plans until the exchange rate is more favorable.

Investments may shift

As other currencies gain more power, investments may shift away from the U.S. This could impact the stock market, real estate, and other investments. If you have investments in the U.S., keep an eye on how the dollar is doing compared to other currencies. It may be worth considering diversifying your investments to buy stocks in foreign markets as well. It is important to do your research before investing overseas.

International trade could become more complex

As other currencies gain more power, international trade could become more complex. Instead of using the dollar as the default currency for trade, other options such as the euro or yuan could become more common. This could require U.S. businesses to adjust their operations, including the currency they use for international transactions. It’s important to stay informed about changes in the global economy to ensure your business stays competitive.

What you should do

Even though the dollar’s dominance as the world’s main reserve currency is decreasing, many economists believe it will continue to hold its position because no other currency is seen as a better option.

You can’t control the global economy, but to keep your personal finances stable, focus on what you can control. That means continuing to invest in yourself and building a steady income, saving 15% to 20% of what you make, and investing regularly. Diversify your investments and look at multiple passive income streams. By doing this, you’ll be in a good position, even if the U.S. dollar loses its reserve status in the future.

RELATED: Best Savings Accounts

The dollar’s declining power is a significant shift in the global economy that could have a range of impacts on U.S. consumers. From the cost of imports to travel expenses to investment decisions, it’s important to keep an eye on how the dollar is doing compared to other currencies. While there could be some negative impacts from this change, there could also be opportunities for U.S. exports to become more competitive. The key is to stay informed, focus on what you can control, and be prepared for changes in the global economy.

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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 12x 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.The Motley Fool has a disclosure policy.

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Need to do your Mother’s Day shopping? There’s still time to find an affordable, unique gift. Check out some fantastic finds from Etsy that cost under $50. 

Mother’s Day is almost here. If you feel like you’ve already bought your mom everything, you may be searching for a creative gift idea this year. Etsy is an online platform full of unique items, many of which are handmade. It’s an ideal place to shop for a present that will stand out. And best of all, you can discover affordable finds that won’t leave your checking account empty. We’ve outlined some creative Mother’s Day gift ideas you can buy on Etsy for under $50.

1. Handmade mug

If your mom is a coffee or tea drinker, why not get her a beautiful handmade mug to add to her collection of cups? There are many gorgeous mugs on Etsy, but one terrific option is the Heel Thrown Pottery Mug in Turbulence Glaze from the shop littleepottery. You can purchase this beautiful creation for $44 with free shipping included. Emily, the shop owner, makes every piece of pottery by hand, and her creations are truly one of a kind.

2. Bookends

If your mom is a reader who loves music, a bookend made from upcycled records is a winning gift idea that can be enjoyed for years. This Rock and Roll Heavy Duty Bookend from RecycledRecordsPlus can be purchased for under $50, including shipping. You can pick an artist or band that matches your mom’s music style for the ultimate present.

3. Disco ball planter

If your mom loves flowers and plants, why not pick her up a new planter? This unique 6″ Disco Ball Planter from HavenstoneHome offers an attractive way to showcase flowers and plants. You can buy it for $35 with free shipping included. When light shines on this gorgeous planter, the room will fill with shimmering hues that will put a smile on your mom’s face.

4. Self-care box

We could all benefit from more self-care. A gift box full of self-care items is ideal if you want to spoil your mom this Mother’s Day. Many Etsy shops sell gift boxes, some of which can be customized. The You Got This, Mama spa gift from KateandBellCo is packed with goodies that are sure to please for only $39.50.

5. Earrings

If your mom loves jewelry, you can’t go wrong with a new pair of earrings. You can find some exceptional jewelry items on Etsy that you can’t buy elsewhere. The Real Mushroom Earrings from MarissaKayApothecary is a fantastic gift for nature lovers. You can score these earrings for $40, including shipping. Your mom will get plenty of compliments when she wears them!

Don’t forget about shipping

If you’re new to shopping on Etsy, don’t forget about shipping. As you explore gift options for your mom, the following shipping tips will help you have the most success as you fill up your Etsy shopping cart:

Shipping costs: If you’re on a tight budget, consider shipping costs. You can use the search filter to review shops that offer free shipping.Shipping times: You should also consider shipping and order processing times, especially when shopping at the last moment. Etsy allows you to search for items by the estimated shipping arrival date and you can narrow your results to shops located in the United States.

Don’t let your finances get your down

As you shop for a winning Mother’s Day present, don’t let your personal finances get you down. If you can only afford to spend a small amount of money, that’s okay. It’s the thought and meaning behind the gift that matters. When shopping, consider paying for your order with a cash back credit card so you can earn rewards on your spending.

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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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