Money Management

Fear not — it’s good news for savers. 

Inflation has been raging since mid-2021, and it’s caused a world of stress for a lot of people. In fact, U.S. credit card balances grew to $930 billion in late 2022, according to recent data from TransUnion, and it’s fair to assume that inflation played a role in that.

The Federal Reserve, meanwhile, has been on a mission to slow the pace of inflation. To that end, it implemented a series of aggressive interest rate hikes in 2022.

Meanwhile, the Fed met today to finalize its interest rate policies for early 2023. And while it’s only moving forward with a modest rate hike this month, that could be enough to result in higher interest rates for savings accounts and CDs alike.

A modest but meaningful rate hike

The Fed just announced it will be moving forward with a 0.25% interest rate hike. That’s the lowest rate hike we’ve seen since March 2022.

In fact, the Fed raised interest rates seven times in 2022, and four of those rate hikes amounted to a 0.75% — a far more aggressive target than usual. Of course, the Fed had its reasons. It needed to make a serious dent in inflation to give struggling consumers relief. But those aggressive rate hikes have driven up the cost of borrowing, to the point where once-affordable options like home equity and personal loans may be less attractive these days.

To be clear, the Fed is not in charge of setting consumer borrowing rates. But when it raises its federal funds rate, which is what banks charge one another for short-term borrowing, it tends to indirectly drive up the cost of consumer borrowing across the board.

But while rate hikes aren’t a great thing for borrowers, they can be a good thing for savers. That’s because rate hikes tend to lead to higher interest rates in savings accounts, as well as higher CD rates. And so following the latest Fed announcement, those with money in the bank could see their savings accounts’ interest rates rise even more.

Furthermore, if you’re thinking about opening a CD, early 2023 may be a good time to do it. You may find that you’re able to snag a generous interest rate without having to tie up your money for more than 12 months at a time.

Will the Fed keep raising interest rates in 2023?

The fact that the Fed’s latest interest rate hike wasn’t so aggressive is a sign the central bank is pleased with the progress that’s been made in the course of fighting inflation. But there’s still work to be done there.

Although inflation has cooled a bit since mid-2022, living costs are still considerably higher today than they were at this time two years ago. And so until inflation levels come down quite a bit, the Fed will most likely continue to raise interest rates. However, unless inflation reverses course, we’re unlikely to see the aggressive 0.75% rate hikes we did in 2022.

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Market conditions could remain tricky, but don’t panic. 

It’s more than fair to say that 2022 was a tough year for stock investors. And now, a lot of people are seeing lower balances in their brokerage accounts and IRAs than they enjoyed a year ago.

Unfortunately, there’s no guarantee that the stock market will recover in 2023. And we could be in for another volatile period, especially given that we’re still grappling with factors like inflation and uncertainty surrounding a potential recession.

In a recent survey by Allianz Life, 77% of respondents said they think the stock market will continue to be very volatile in 2023. And you may be wondering what to do in light of that. But the best solution may be to do nothing at all.

Stay the course

Maybe you had $28,000 in your IRA account a year ago, and now your balance has been whittled down to $22,000. That’s a really frustrating thing to see.

But remember this. If you’re investing for a far-off goal, like retirement, there’s no reason to sell off investments anytime soon. And if you don’t sell your investments while they’re down, then you won’t lose money.

So, going back to our example. Your IRA is now only worth $22,000 based on the value of your portfolio. That’s a bummer. But if you do nothing — meaning, you don’t sell anything and also don’t contribute another dime — you may find that in a year from now, your account balance is back up to $28,000. And if the market does well, you might have a balance of $35,000 a year later — even if you don’t end up contributing any more money.

So all told, doing nothing is a really solid bet during a volatile stock market. Unless you have a specific reason to liquidate a given investment, there’s really no sense in going that route, because all you’ll be doing is locking in a loss

Keep investing

Leaving your existing investments alone and not selling them is a good way to ride out a period of stock market volatility. But at the same time, it pays to keep investing over the next 12 months, even if the market is far from stable.

First of all, the more money you put into a traditional IRA, the more tax savings you’ll get to enjoy. Also, right now, stock values are down across the board — which makes it a good time to buy. If a company you think has solid potential was trading for $80 a share a year ago, and you can now scoop up shares for $70 apiece, why wouldn’t you want to do that?

Just as it pays to buy goods on sale, so too does it pay to buy stocks when they’re on sale. Only the value of your goods from a store may not increase, whereas the value of your stocks might.

A turbulent stock market can be tough to handle. And the thought of continued volatility might seem draining. But if you pledge not to sell off investments at a loss, you won’t actually lose any money. And if you keep investing as the opportunity presents itself, you might set yourself up to grow a lot of wealth over time.

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While many states are experiencing an increase in rental costs, some are seeing more affordable rates. 

With increasing living costs, it can be challenging to find affordable housing. While many states are seeing a rise in rent costs, not all are. If you have the flexibility, you may be able to take advantage of more affordable rent costs by moving out of state. Housing is a significant expense for most people, so cheaper rent may help you reduce your expenses so you can improve your personal finance situation. Find out which states are seeing a decrease in rental costs.

Eight states with rapid rental decreases

Rent.com’s January 2023 Rent Report examined year-over-year rental pricing changes in December 2022. Here are the states that saw the most significant decrease in rental costs based on its findings:

Idaho: 5.4%Nevada: 2.7%Arizona: 2.5%Oregon: 2.4%Virginia: 1.2%Maryland: 1.1%Pennsylvania: 0.7%Georgia: 0.6%

Median rental price by state

The same report outlined median rental prices for each state. Rent.com looked at available rental inventory and various bedroom types to calculate a simple median. These were the median rental prices in those eight states in December 2022 based on its research:

Virginia: $1,946Maryland: $1,862Oregon: $1,768Georgia: $1,716Pennsylvania: $1,646Idaho: $1,642Nevada: $1,586Arizona: $1,541

All the states above have median rental prices that are more affordable than the national median, which was $1,978 in December 2022.

Don’t forget to consider other costs before moving out of state

Can you save money by moving to a state with lower rental prices? Maybe. But before signing a new lease in a different state, you should consider how your finances will change by moving elsewhere. While housing costs may be cheaper, other expenses may change when you move.

Here are some financial considerations to make before planning an out-of-state move:

State income tax: While not all states have income tax, most do. When you move, your state income tax responsibility may change. Be sure to calculate how that will impact your paycheck.Local income tax: You may find that your local income tax responsibilities will differ in a new area. It’s best to research this before you pack up and move.Vehicle registration and inspection costs: If you own a vehicle, you’ll want to research how your vehicle registration and inspection costs might change.Transit costs: If you don’t drive, you’ll want to examine transit costs in your new home. If transit is limited, check to see if you can find a rental in a more walkable area.Sales tax: Sales tax is another cost that can differ by state and city. It’s a good idea to research the sales tax rate where you plan to move so you’re not surprised.Insurance: Don’t forget to research the price of insurance costs in your new state, like car insurance and rental insurance.

Moving to a new state could be a win for you wallet

If you’re struggling to afford rising rental costs where you live now, moving elsewhere could be an excellent way to reduce your expenses to save money. Consider your budget when looking at properties so you don’t overcommit beyond your financial means. It’s also best to research how other costs may differ when moving out of state.

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Talk about good news. 

There are plenty of benefits to using a credit card. For one thing, making purchases on a credit card often means getting to enjoy cash back or other rewards. Plus, you might get more purchase protection than you’d get using a debit card or cash.

But while credit cards can benefit consumers financially and also help them build credit, they have their drawbacks. If you can’t pay off your credit card balance in full, for example, you might accrue a lot of interest on it, making your purchases cost more.

Also, being late with a credit card payment could result in costly fees that hurt you financially. One consumer watchdog agency, however, is now taking steps to limit those fees so they aren’t such an undue burden.

Cracking down on credit card late fees

The Consumer Financial Protection Bureau (CFPB) says that credit card late fees cost U.S. consumers about $12 billion a year. As such, the agency just proposed a rule to curb those excessive fees. And if that rule goes through, it could save consumers as much as $9 billion a year in reduced late fees.

The problem with late fees is that they can apply even if you’re just a few hours late with a given payment — something that could easily happen to the best of us. It’s common for credit card companies to charge as much as $41 for a single late payment, but under the CFPB’s new proposal, that number could shrink down to just $8.

How to avoid credit card late fees

One of the easiest ways to avoid getting hit with credit card late fees is to mark your calendar with your various cards’ due dates and make sure to set up reminders. That could help you avoid being charged due to human error.

Another good bet? Keep tabs on your credit card balances by checking them weekly. And if you see you’re spending too much in a given month, cut back. That could help you avoid being charged a late fee due to an inability to pay.

You should also know that in some cases, your credit card company might let you off the hook for a late fee. It pays to ask for that leeway if you happen to miss a payment.

Now, you’re unlikely to see that fee waived if you’re chronically late. But let’s say you’ve been a cardholder for three years and are a day late with a payment because you simply forgot to send it in. In that case, it’s worth calling your credit card company and asking for a little flexibility. In many cases, a card issuer will waive the fee for a first-time offense, especially if you’ve been a cardholder in good standing for years.

But in general, avoiding credit card late fees altogether is really your best bet. This holds true whether the CFPB’s new proposal goes through or not. Even if credit card late fees are minimized in the future, at the end of the day, you’re still being charged for something you’re not getting value out of. And that’s not something you want.

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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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