Personal Finance Blog By MoneyRates - October 2008
October 29, 2008
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October 28, 2008
A majority of economists are predicting at least another quarter point drop in interest rates will be announced by the Fed tomorrow with an outside chance of a half point decrease. Recent economic releases which have highlighted just how sluggish the U.S. economy has become have bolstered the ability of the Fed to aggressively lower rates, although they will be fast approaching their floor of 0.00% rates if they move to dramatically. Some economists believe the Fed will wait until after the Presidential election before moving rates, but will strongly suggest with their released statement that a move is imminent. Futures at the Chicago Board of Trade are trading with an implied Fed Funds rate of:
December 2008 contract - 0.84%
January 2009 contract - 0.84%
February 2009 contract - 0.86%
March 2009 contract - 0.90%
April 2009 contract - 0.97%
May 2009 contract - 1.05%
June 2009 contract - 1.07%
July 2009 contract - 1.16%
August 2009 contract - 1.28%
If the Fed does go ahead and lower the target rate for the Fed Funds rate below its current level of 1.50%, then banks will also adjust their prime lending rate from its current level of 4.50%. Many consumers with loans and credit cards tied to the prime rate will benefit with lower finance charges and lower minimum monthly payments.
October 21, 2008
Federal Reserve Chairman, Ben Bernanke, testified in front of Congress this week and advocated a second round of fiscal stimulus in an effort to prevent a long period of economic slowdown. Bernanke, who would be typically be centering his talking points on inflation, interest rates, and monetary policy told Congressional legislators that a new fiscal package should be geared toward opening up credit markets for American consumers. The first stimulus package, passed by Congress last spring, gave most Americans a $600 rebate check and helped keep GDP positive through the second quarter of 2008. Bernanke and most economists are in agreement that no fiscal policy will prevent at least a short recession, but aiding the debt-burdened American homeowner appears to be on the agenda now that major financial companies and banks have been bailed out. Some of Bernanke's comments in front of Congress are below:
October 16, 2008
It is always a good week for a savings account customer when the Fed lowers short-term interest rates by 50 points, but their bank increase the rate on their savings accounts. Customers of Venture Bank in the state of Washington were fortunate enough to benefit this week from an increase up to 3.80% APY on the Venture Bank Direct Wise Choice Online Savings Account despite the dramatic movement by the Federal Reserve with the fed funds rate. Venture Bank has 18 branches in four western Washington counties with approximately $1.2 billion in assets, but their online savings account is available nationally for customers.
- Ten minutes online sign-up
October 14, 2008
It would not be a typical fall day without a major financial announcement from Washington D.C. Today's new program is the FDIC announcement that all non-interest bearing accounts will be insured fully for participating instituions. This is a measure aimed at business payroll processing accounts and will stay in place until the end of 2009. The program is suppsoed to be paid for with premiums from participating banks and not taxpayer money, although it would seem difficulty to say for certainty that the US taxpayer may not ultimately pay for some of the cost if there are more major bank failures. Additonally, the FDIC announced that the will guarantee some newly issued senior unsecured debt of banks.
FDIC PRESS RELEASE 10/14/2008
The Federal Deposit Insurance Corporation (FDIC) announces a new program��the Temporary Liquidity Guarantee Program��to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.
"The FDIC is taking this unprecedented action because we have faith in our economy, our country, and our banking system," said FDIC Chairman Sheila C. Bair. "The overwhelming majority of banks are strong, safe, and sound. A lack of confidence is driving the current turmoil, and it is this lack of confidence that these guarantees are designed to address."
Under the plan, certain newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails, or its holding company files for bankruptcy. This includes promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Coverage would be limited to June 30, 2012, even if the maturity exceeds that date.
In addition, any participating depository institution will be able to provide full deposit insurance coverage for non-interest bearing deposit transaction accounts, regardless of dollar amount. These are mainly payment-processing accounts, such as payroll accounts used by businesses. Frequently, these exceed the current maximum limit of $250,000. This new, temporary guarantee��which expires at the end of 2009��will help stabilize these accounts.
"The program will be funded through special fees and does not rely on taxpayer funding," Bair said.
Participants will be charged a 75-basis point fee to protect their new debt issues, and a 10-basis point surcharge will be added to a participating institution's current insurance assessment in order to fully cover the non-interest bearing deposit transaction accounts.
To implement the program, the FDIC Board approved the use of its statutory authority to prevent systemic risk. The Secretary of the Treasury, after consultation with the President and the Federal Reserve Board, made a comparable systemic risk determination.
All FDIC-insured institutions will be covered under the program for the first 30 days without incurring any costs. After that initial period, however, institutions wishing to no longer participate must opt out or be assessed for future participation. If an institution opts out, the guarantees are good only for the first 30 days.