Money Management

Hint: Borrowers may not like the answer. 

Inflation battered consumers from the start of 2022 through the very end of it. And while the pace of inflation has slowed over the past few months, the Federal Reserve isn’t happy with where things stand.

That’s a mixed bag for consumers. On the one hand, it’s good to see that the Fed is on a mission to bring inflation levels downward, as that alone could put less of a strain on consumers’ budgets. On the other hand, to bring inflation levels downward, the Fed has been implementing aggressive interest rate hikes designed to drive consumer borrowing costs upward. And if that trend continues, the cost of a variety of loan products, from auto loans to personal loans, could soar.

Meanwhile, the Fed is meeting on January 31 and February 1 to review its interest rate policies, among other things. And if the Fed decides to implement another steep rate hike, it could spell bad news for personal loan borrowers.

An affordable borrowing option that’s becoming less so

It’s a big misconception that the Federal Reserve is directly in charge of setting consumer borrowing rates, like home equity loan rates and mortgage rates. What the Fed oversees is actually the federal funds rate, which is the rate that banks charge one another for short-term borrowing purposes.

But when the Fed raises its federal funds rate, it tends to indirectly drive up the cost of consumer borrowing. So if the Fed hikes up interest rates again this week, personal loans could get more expensive, as could borrowing options like credit cards.

Of course, the rub there is that personal loans are often touted as an affordable, economical means of borrowing money. But that’s during periods when borrowing rates aren’t sky-high across the board. And if the Fed raises interest rates again, we could get to the point where even personal loans become an unattractive borrowing option.

Consumers should brace for another rate hike

In December, the Consumer Price Index, which measures changes in the cost of consumer goods, rose 6.5% on an annual basis. That was a marked improvement from November, when the index registered a 7.1% annual increase in inflation. But all told, we’re still far away from where the Fed wants to be.

As such, consumers should anticipate another interest rate hike this week. Whether it’s a steep one or not is yet to be determined, but either way, the Fed isn’t done fighting inflation. And we may be in for another series of rate hikes in 2023. That’s all the more reason to apply for a personal loan sooner rather than later if a need to borrow money exists.

Now the good news is that just as it’s possible to refinance a mortgage, it’s possible to refinance a personal loan. So consumers who start out with a more expensive rate have the potential to lower it in time. But we may not see consumer interest rates decline for quite a while, so anyone in need of a personal loan should really get moving before it becomes less financially feasible.

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The Fed isn’t planning to cut rates just yet, but here’s what to expect when they do. 

The Federal Reserve has been raising interest rates aggressively in an effort to cool off the economy and get inflation under control. As a result, many savings accounts are paying significantly higher interest rates than they were just a year ago. Most of the best high-yield savings accounts currently have APRs in the 3.3% to 4% range, which would have been unheard of not long ago.

To be sure, the Federal Open Market Committee (FOMC — the policy-making arm of the Fed) isn’t planning on cutting rates anytime soon. But when they do, what will it mean for your savings account interest? Here’s what you need to know as we approach the expected latter stages of the current rate hike cycle.

What does it mean when the Fed raises or lowers rates?

When you hear the Federal Reserve “raised rates,” it typically refers to the federal funds rate. In simple terms, this is the interest rate banks charge other banks to borrow money. When the federal funds rate is raised, it makes it more expensive to borrow and effectively removes money from the economy. When the federal funds rate is lower, it encourages banks to borrow and increases the money in the economy. The idea is that a lower federal funds rate stimulates economic activity, and a higher federal funds rate is a tool used to help the economy cool off.

For our purposes, the federal funds rate is used as a benchmark interest rate. Several important interest rates are directly derived from the federal funds rate, with the U.S. prime rate the key example. Some consumer interest rates, such as credit card APRs, move directly with the federal funds rate. Others, like savings account interest rates, are not directly tied to it, but are still impacted.

When will the Fed cut rates?

The short answer is that nobody knows, but it’s very important to realize that the Fed doesn’t want to keep rates high for any longer than it needs to.

For some clues, the latest projections by the actual policy makers call for the federal funds rate to rise to about 5.1% by the end of 2023, so we’re looking at another three rate hikes from the current 4.25% to 4.5% target range (Note: Federal Reserve rate hikes are done in 25-basis-point increments.)

However, the median projection also has rates falling to 4.1% by the end of 2024 and to 3.1% by the end of 2025. These projections can (and probably will) change, but the key takeaway is that the Fed plans to start lowering rates in the not-too-distant future.

What does a rate cut mean for your savings account?

Here’s an important concept for savings account owners to understand. Your savings account yield, or APY, is not directly tied to the Federal Reserve’s moves. If that were the case, savings account interest rates would be about 4.25% higher than they were this time a year ago, which isn’t the case. In reality, the typical high-yield savings account pays two to three percentage points more than before the Fed started raising rates.

However, savings interest rates do tend to move in the same direction as benchmark rates. So, if the Fed starts to lower the federal funds rate, either later this year or sometime next year, it would likely mean the APY paid by your savings account would decline. It’s just a question of how quickly and by how much, and those two variables mainly depend on your bank, not the Federal Reserve.

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Recent research has estimated just how much time you get back when working remotely. 

While remote work used to only be an option for a small portion of workers, that changed as a result of the COVID-19 pandemic. Many employers had to start allowing employees to work remotely for health and safety reasons. Even though some have since required workers to come back to the office, there’s still a much larger number of people than before in remote or hybrid working arrangements.

Remote work has plenty of advantages over going into the office, and the time saved is one of the big ones. But just how much time do you save by working remotely? A recent working paper by the National Bureau of Economic Research (NBER) has an answer.

Average time savings when working remotely

The average daily time savings of working from home is 72 minutes, according to “Time Savings When Working From Home” by the NBER. It calculated how much commute time remote workers save in 27 countries.

Daily time savings varied quite a bit by country. The United States was actually on the low side, with remote workers saving an average of 55 minutes per day. On the other end of the spectrum were India, Japan, and China, where remote workers saved 99, 100, and 102 minutes, respectively.

Making the most of extra time when working remotely

It’s always nice to have more time on your hands. If you’re now working remotely, you’ve probably found yourself with a nice chunk of extra time thanks to getting rid of your daily commute.

However, extra time can be like extra money, in that it’s easy to waste. Have you ever gotten a raise, but found that you still seem to end up with the same amount of money at the end of the month? When people don’t plan how they’ll use extra money, they often just end up spending more, instead of using it to improve their personal finances.

The same is true when you have newfound time on your hands. If you don’t plan how you’ll use that time, there’s a good chance you’ll end up being unproductive.

Now, this doesn’t mean it’s wrong to use extra time for rest and relaxation. If you work long hours and have a packed schedule, then making time for leisure activities is a good idea. It could help you destress and avoid overwork. But if you already have a balanced schedule, and you’re able to save time thanks to working remotely, try to put it towards something productive. Here are a few ways you could use your newfound time:

Work on a small business or side hustleRun errandsFocus on your health by exercising or prepping nutritious mealsUse it for childcare and save on daycare costs

Spend some time thinking about how that extra time could make a positive impact on your life. That could mean using it for goals you’ve been meaning to get around to, new streams of income to pad your bank account, or tasks that you just couldn’t fit into your schedule before.

How to transition to remote work

If you currently have an in-person job, but you’d like to start working remotely, there are a couple of ways to go about it.

If your job can be done remotely, talk to your manager about it. Some employers are reluctant to allow this, but here are a few tips that could help you convince yours:

Explain how it’s beneficial to them. Have some data points ready on how remote work benefits employers financially. For example, you could mention how working from home led to a 13% performance increase, according to a Stanford study.Offer a hybrid arrangement to start. If your employer isn’t sure about going 100% remote, ask if you can do it for a day or two per week. If it goes well, you can ask later about shifting to more work-from-home days.Let them know why remote work is important to you. If you have a rough commute or working from home would help you spend more time with your children, share that information.

Hopefully, your employer will be open to the idea. But if not, or if your current job isn’t one that can be done from home, the next best option is to start looking for new job opportunities. Check out companies hiring for remote jobs, as there are a lot out there. Also, bookmark remote job boards and review the latest listings regularly.

It was common knowledge that remote work saved people time, but now, there’s more data on how much time is saved. If you’re a remote worker, try to use that time wisely so that it doesn’t go to waste.

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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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Apparently George Washington was a big fan of home appliances. 

For pretty much everything, there is the best time to buy it — and the worst. Taking the time to ensure you’re buying at the right time can make a big difference for your personal finances.

Thanks to its holidays (both official and unofficial), February can be a great time to buy things like TVs and appliances. But it’s also the worst time to buy these three things.

1. Smartphones and computers

Although February can be a great time for buying some electronics — namely TVs and appliances — it’s actually one of the worst times to pick up smaller consumer electronics, like smartphones, tablets, and computers.

Why? Because the new models tend to debut in the spring. If you wait until the newest iterations hit the stores, you’ll be more likely to find some deals (both on last year’s models and even on the new releases).

Pro tip: When you’re ready to buy the latest smartphone or tablet, consider opening a new credit card a week or two beforehand. A $1,000 smartphone could get you most or all of the way to a nice sign-up bonus! Many no-annual-fee cards have decent bonuses with lower spending requirements, making them a great option.

2. Spring fashion

This time of year is when we start to see the spring fashion hit stores — and social media feeds. It’s never a good time to buy fast fashion, but it’s especially expensive to be among the first to sport next season’s threads.

Instead of looking towards spring fashion, plan ahead even further. February can be a great time to pick up fall and winter clothes at a nice discount. Look for well-made pieces with timeless style that will last you many years to come.

3. Fitness gear and memberships

One of the most common New Year’s resolutions is to get into better shape. Retailers are well aware of this trend, so they offer tons of sales focused on fitness gear, workout clothes, and gym memberships all throughout the month of January.

But by the time February hits, the sales are done and the gyms are full. (In fact, many gyms will oversell memberships in January knowing that people will cancel or won’t show up after that initial motivation wears off.)

All this means February is often the absolute worst time to make fitness-related purchases. If you missed out on the January deals, you may be better off waiting until the weather improves; you may see some deals pop up again as people start getting back outdoors and begin prepping for swimsuit season.

The only exception? If you’re buying used equipment. People who upgraded in January may be looking to pass on their older gear to make room.

February deals to watch out for

Although February isn’t the best time to buy the things on our list, there are other sales to keep an eye on. For example, TVs tend to see big sales in the week or two leading up to the SuperBowl.

However, the biggest sales tend to be around Presidents’ Day, which is the third Monday in February (that’s Feb. 20, 2023). Presidents’ Day sales make February the best time to pick up things like furniture, including mattresses, as well as many major appliances.

February can also be a good time to look for tax software and service deals. Most companies are required to send out tax documents by the end of January, so companies look to nab the early filers with discounts and promotions starting in February.

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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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