How to Get Along with Your Financial Frenemy
Are rising interest rates friend or a foe? The answer often depends on how quickly you respond.
After an almost unprecedented period of immobility, interest rates are finally on the move. When the Federal Reserve came through with its promised quarter-point increases in Q2 and Q4 2017, it signaled the start of what the U.S. Central Bank said would be a gradual increase over the following 12 months. You’re hard-pressed to find an economist who doesn’t forecast the same.
For nearly everyone, rising interest rates present a double-edged sword. Fantastic for earning interest; not so great for paying it. That’s why staying close to your banker during a period of fluctuating rates is so important. Remember, the squeaky wheel gets the grease. So, if your cash management partner isn’t proactively reaching out to you, pick up the phone and insist on a conversation.
Here are a few basic questions you might ask…
Should I be moving my money?
Every progressive financial institution needs deposits. Most banks have or will soon go over their preferred lending thresholds during what has been a huge period of loan growth. Naturally, they need the funds to back up those loans. This is what’s causing all those competitive CD and money market rate promotions you may be hearing about. Financial institutions are hopeful you will see their shiny new rates and pull your money out of the savings account you have with a competitor and bring it on over to them. Are you taking advantage?
Of course, moving money can be a hassle. Keep in mind that by having a conversation with your current banker, you may find he or she is willing to negotiate so you won’t have to leave at all.
What can you do about FDIC limits?
If a material percentage of your business, non-profit or personal portfolio is made up of cash, this can be an important consideration, especially as financial cybercrimes continue to proliferate. As you work with your financial institution, ensure the bank has you covered from an insurance standpoint. The FDIC protects deposits up to $250,000. Ask about CDARS or ICS, each of which helps cash-strong bank clients manage their risk beyond that dollar amount.
Is my line of credit going to reset?
The answer to that is very likely, yes. At Bank Iowa, we tend to price off of the Wall Street Journal Prime Rate. As this moves upward, so, too, will the rates on lines of credit, many of which are adjustable. Ask your banker if locking in that rate is an option so you don’t have an unexpected increase in costs associated with your credit needs.
Make sure you understand when your line of credit is set to renew, whether the bank foresees any issues with that renewal and exactly how much more it’s going to cost you. When you get your answers, a smart follow-up question is, “How are you going to help me address my interest expense?”
Having regular conversations with your banker is a best practice. If you’re not currently doing so, take our financial wellness quiz to see if there are other to-do’s you may want to add to your list this year.
Having those chats is especially important now, as your financial frenemy is making moves. The last thing you want to do is wake up to rising interest rates only after they’ve crept up an entire point. Call your banker today, and remember, it never hurts to have a second financial institution in mind to help secure the best outcomes from that call.
Mark K. Phillips is cash management services manager for Bank Iowa, Iowa’s second largest family-owned financial institution. He can be reached at firstname.lastname@example.org. To learn more, visit bankiowa.bank. Member FDIC.