The Fed increased a key interest rate on June 13, the second such increase of the year, and the seventh since it began boosting them in 2015. The rates on fed funds are currently between 1.75 and 2 percent. All indications are that two more hikes are likely before the end of 2018.
These increases continue to afford the banking sector profitability windows, yielding better returns, in particular on short-term notes. Other areas of opportunity to explore include:
1. Credit cards. Americans are spending money, and lots of it. The economy hit a 3% growth rate for the first time since 2005 last year. With that, total credit card debt surpassed $1 trillion in 2017, with the average American carrying a balance of $6,375. According to a WalletHub analysis, this 25-basis-points rate increase will bring in an extra $1.6 billion in finance charges. This is in addition to the previous 25-basis-points hike earlier this year, and more are expected before the end of the year.
2. Mortgages. Higher interest rates equal greater returns for banks. The annual rate has not hit 4% since 2014, but already in 2018, the monthly rates have steadily climbed from 4.03 in January to 4.59 in May. Again, with more rate hikes on the horizon, this should continue to rise. Variable interest mortgages will feel a more immediate impact. A 0.25 percent rate hike translates to a $50 - $55 monthly payment increase on a $250,000 home equity line of credit.
MIMICS software can help. Our FED FUNDS module encompasses all the functionality you need, and our LOAN MANAGEMENT software can greatly help consolidate and streamline your operational needs for mortgages and other debt instruments.