Money Management

Inflation finally cooled off. Read on to see why that might positively impact those looking for a personal loan. 

In February, the Consumer Price Index (CPI), which represents changes in the cost of consumer goods, rose 6% on an annual basis. Now, that’s by no means a low level of inflation. In fact, a more “normal” rate of annual inflation is around 2%. But still, inflation has been cooling steadily since mid-2022. And in March, the annual rate of inflation dropped even more, to 5%.

That’s good news for a couple of reasons. First, it means that living costs are coming down. And that means consumers who have been falling back on their savings accounts and credit cards might finally get to break that cycle.

Secondly, a lower inflation reading in March means the Federal Reserve might choose to stop raising interest rates for a period of time this year. And if that’s the case, it could spell relief for consumers looking to take out personal loans in the near future.

Consumers could use a break from interest rate hikes

The Federal Reserve has been raising interest rates for more than a year now, with the goal to help bring inflation back to a more moderate level. See, the whole reason inflation has been surging is that there’s been an excess of demand for consumer goods and services relative to the available supply.

When the Fed raises interest rates, and it becomes more expensive to borrow money across the board, it’s apt to lead to a decline in consumer spending. That’s been needed to bridge the gap between supply and demand that’s been leading to rampant inflation.

But if the Fed finds itself pleased with the most recent CPI reading, it might hit pause on its rate hikes. If it does that, the cost of taking out a personal loan might hold steady rather than rise.

Now to be clear, the Fed is not in charge of setting personal loan borrowing rates. Those are set by individual lenders who give out those loans.

Rather, when the Fed raises interest rates, it tends to indirectly drive up the cost of borrowing across different loan products, from personal loans to auto loans to home equity loans. So if the Fed were to leave rates where they are right now for a period of time, it could end up being very helpful for those in need of a near-term personal loan.

Is now a good time to take out a personal loan?

Because the Fed has been raising interest rates steadily since early 2022, the cost of borrowing via a personal loan is already up. So generally speaking, right now, you’re probably not looking at the most competitive personal loan rates, even with a great credit score.

On the other hand, if you have a pressing need for money, a personal loan may be among your most affordable borrowing options. But if you want to help ensure that you end up getting as good a deal as possible in today’s borrowing environment, shop around with different lenders before signing a loan. That way, you can compare your choices and see which one makes the most sense for 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 U.S. economy appears to be experiencing a downturn. Read to learn what you can expect for your saved cash. 

As more companies in the U.S. lay off workers and the economy continues to experience high inflation despite higher interest rates, many people are wondering if the U.S. economy will head into a recession. Let’s take a look at what happens to your savings in a recession and how to safeguard your finances.

What is a recession?

A recession is a term used to describe a significant decline in economic activity. A common rule of thumb to define a recession is when we see two consecutive quarters of negative economic growth. However, it is much more complex than that. Recessions are officially declared by eight economists from the National Bureau of Economic Research (NBER). According to the NBER, a recession is “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” The last time we were in a recession was during the start of the COVID-19 pandemic, from February to April 2020.

When a recession occurs, there is a drop in the production of goods and services, unemployment rates rise, and the stock market declines. This can result in a decrease in consumer spending, which can worsen the situation. Recessions can last for a few months to several years and they can affect different countries and industries in different ways.

How does a recession affect your savings?

If you’re someone who has saved diligently over the years, a recession can be a real punch in the gut. Here’s what you should watch out for.

Savings interest rates decrease

When the economy is in a recession, interest rates tend to go down to promote borrowing, which can stimulate economic activity. Unfortunately, this means that the interest rates offered by banks, particularly on savings accounts, will drop too. In turn, it affects the amount of interest you earn on your savings. However, inflation also tends to be lower during a recession, so the value of your money is higher than when there is high inflation.

Stock market volatility

Investors who have put their money in the stock market are usually hit hard during a recession. During this period, the stock market usually experiences a lot of volatility as investors panic and offload their stocks, leading to a decline in the markets. Unfortunately, when the stock market is performing poorly, your investments may also be significantly affected, particularly if you have money in stocks or mutual funds.

Job security

Another risk associated with a recession is the potential loss of a job. When businesses are struggling financially, they may need to downsize their workforce or shut down altogether, which could leave you without a reliable income stream. Without income, you may need to dip into your savings to cover your expenses, which could deplete your savings much faster than you expect.

How to protect yourself in a recession

There are ways to protect your savings during a recession. Keep your savings in a high-yield savings account or certificate of deposit (CD). While the interest rates on CDs and savings accounts may not be high, they are generally safe and can provide some protection against inflation. However, it is important to remember that the FDIC only insures deposits up to $250,000 per depositor per insured bank. So, if you have more than $250,000 in savings, you may need to spread your deposits across multiple banks to ensure that they are all fully insured.

It is also important to have an emergency fund in place. During a recession, it is much more likely that you may lose your job or experience a decrease in income. Having an emergency fund with at least three to six months’ worth of expenses can help you weather the storm without having to dip into your long-term savings.

To protect your savings from a market crash, focus on diversifying your investments across multiple asset classes. Consider investing in bonds, commodities, and other alternative investments that tend to perform well when the stock market is struggling. Additionally, don’t trade frequently or try to time the market; take a long-term investment approach and focus on your goals.

Focus on paying off any existing debts you have as quickly as possible. If you do need to borrow to cover expenses, make sure to do so in a responsible manner, only taking on what you can afford to pay back in a reasonable time frame.

While recessions can be scary, there are steps you can take to protect your savings from their potentially negative effects. Remember to stay focused on your long-term goals and don’t make emotion-based decisions in response to short-term market changes. By taking a proactive approach, you can safeguard your savings and come out on top.

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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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No payment method is 100% safe. Here’s why one writer is going to wait for a while to consider using an Apple Wallet to make payments. 

I should preface this by saying that few people would describe me as a risk-taker. Since the day I was born, I’ve had a cost analysis tape running through my brain, reminding me of potential costs. For example, when I was a teenager and my half-drunk friends wanted to climb into a car with a moron at the wheel, I immediately recognized how much it could cost us all. Today, when a slick salesperson tries to talk me into buying more than I need, my mind automatically reminds me of the regret I will likely feel a few months down the road.

I used the Apple Wallet on my iPhone for a few months, and I tried very hard to convince myself that leaving my credit cards at home was great. The more I read about it, the more I realized that there is a potential cost — no matter how unlikely. I stopped using the Apple Wallet due to that cost analysis tape.

In reality, I can’t say that I’ll never use it again. However, I have no interest in starting over with these three issues staring me in the face.

1. I have to bring an alternate form of payment anyway

I dedicate as little time to shopping as possible. The only shopping I truly enjoy is at farmer’s markets, art fairs, and other settings where small businesses can display their wares. I can’t always count on the person operating a booth to accept credit cards.

I realize that the Apple Wallet can work with any contactless payment system, but a contactless payment system is not always available. I found that I was still carrying cash when I shopped, defeating the purpose of switching to the Wallet.

2. I’m really bad about disconnecting from public wifi

I cannot begin to tell you how many times my sons have reminded me to disconnect my iPhone from public wifi. It’s just so stinkin’ easy to walk into a store or coffee shop and forget that my iPhone automatically searches for nearby wifi connections.

And here’s why my habit matters: Hackers and cybercriminals adore public networks because they’re relatively easy to manipulate. Say I’m grocery shopping and pull out my phone to pay. I likely won’t even notice that my device automatically connected me to the store’s public network, yet for the time I’m on that public network, my phone is vulnerable.

The good news is that it’s easy to resolve the issue. All I need to do is go to Settings > wifi > Ask to Join Networks, then click Off. That would prevent my phone from automatically connecting.

However, I sometimes need to be on a specific public network. For example, to use Cartwheel at my local Target, I must log into its network first. And I cannot access anything on my phone inside our local Kohl’s store without logging into its network.

3. Hackers are a clever bunch

Have you ever wondered what kinds of amazing things hackers could do with their lives if they focused their energy on something other than ripping people off? A study conducted by computer experts from the University of Birmingham and the University of Surrey was presented at the 2022 IEEE Symposium on Security and Privacy.

According to their research, there’s a vulnerability when Visa cards are set up in “Express Transit mode” in an Apple Wallet. When that’s the case, hackers can bypass the phone’s lock screen and perform contactless payments. The study found that the weakness only applies when Visa is used. But let’s face it, I’m probably going to want to pay with my Visa card from time to time — particularly because I depend on the rewards points.

The paper describes how hackers gain access and how researchers figured it out. While it’s all quite fascinating, it’s enough to make me wary.

I do not doubt that Apple (and others) will continue to make upgrades that protect the user, and at some point, I may even give the Apple Wallet another go. Until then, I’ll carefully guard my credit cards and cash.

These savings accounts are FDIC insured and could earn you 12x your bank

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.Dana George has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

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