Personal Finance Blog By MoneyRates - December 2007

The Bank of England lowered its key interest rate by a quarter-point to 5.50 percent today marking their first rate cut in more than two years. The Bank of England stated that "Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow." Inflation in England has edged over the targeted 2.00% range, but the central bank has turned its focus on resurrecting a sagging housing market and attempting to prevent an economic slowdown.

Sound familiar? This should be about the same story we hear next week in the United States when the Federal Reserve meets and is likely to lower rates. The only difference is that the Bank of England lowered their rate to 5.50%, while our key interest rate is already down to 4.75%. Wall Street will love the rate cut and the American consumer will be cheerful with the lower credit card rates and home equity loan rates which will surely follow, but there can be a downside to cutting rates too aggresively. Many economists including author Jim Rogers have pointed to the weakening dollar and price of oil as serious risk to runaway inflation. Their view is that the business cycle needs periods of downturn to regenerate and a short recession may be less painful than a long protracted period of high oil prices, a weak dollar, and serious inflation.

A Heath Savings Account (HSA) are viewed as a tool to pay for healthcare expenses pre-tax and lower healthcare premiums. An overlooked component of these accounts is the investment returns that the accounts generate. A typical bank HSA account yields less than comparable bank deposit products so consumers should be careful to question the current rates of return in their bank's HSA accounts before opening an account. HSA Bank, located in Wisconsin, is offering a 4.75% APY on HSA balances over $15,000 one of the highest rates The Savings Investor could find today.

U.S. Treasury yields are lower this week across the board from 3-month T-Bills to 10-year T-Bonds. Yields below 3% are now the rule (except for a bump in the yield curve at 6-months where the yield jumps over 3.10%) for all the U.S. Treasuries with maturities 5 years and less.

The Federal Reserve meets next week with most economists predicting at least a 25 point cut in the fed funds rate to back up the recent comments by Fed officials that the housing downturn and credit crunch is on the Fed's radar. Consumers may see a Christmas present from the Fed in the form of lower rates on their credit cards and home equity loans. Investors who like to income-producing investments are likely to see lower rates heading into 2008 on their investments.

Patriot Bank, a regional Texas bank, is offering a 5.50% APY on savings accounts opened with a minimum of $100. A visit to one of the Texas branches is required to earn the stated APY.

More FDIC-insured savings account yields here.

Social lending has been around for a couple of years now, but is back in the news with the launch of Zopa US this week. Typically, social lending or peer-to-peer lending has allowed borrowers to receive loans directly from other people and not banks or financial institutions. A reduction in loan fees and rates paid on loans have been the major benefit to borrowers who can also make a personal appeal for funds through social networking. Investors who are lending through these sites are claiming to be earning good rates of return with delinquencies not as high as predicted originally. The new site, Zopa US, has a different model in that lenders will open a CD at one of six credit unions and apply interest to specific loans, thus reducing the borrowing rates for certain borrowers while only risking their interest and not their principal which remains in the credit union CD. The lending sites Prosper.com and Lending Club offer a traditional matchmaking site where lenders select specific loans to fund and are at risk if the loan is not repaid. The Lending Club's site is quoting a rate of return of over 12% for their investors, but is unclear if that is taking into account delinquencies. Meanwhile, a recent report indicated that about 5% of Prosper.com loans were in default, meaning investors would have to be earning over 10% on their portfolio to overcome a delinquency rate that high and still beat rates offered on bank money market accounts on their investment.

More information about social lending sites here.