FX Excursions

FX Excursions offers the chance for once-in-a-lifetime experiences in destinations around the world.

Ups and Downs

by Kevin Ryan, CPA/Partner, Citrin Cooperman

Dec 13, 2019

PHOTO: © NUTHAWUT SOMSUK – DREAMSTIME.COM

December 2019

THE FEDERAL FUNDS RATE is the interest rate targeted by the Federal Reserve. It is the interest rate banks charge each other for overnight loans. After the recent cut on Oct. 30, 2019, the third cut this year, the rate will hover between 1.5 percent and 1.75 percent. The federal funds rate is not the rate used by banks for lending to individuals and businesses; that is the prime interest rate, currently at 4.75 percent. Since 1994 banks commonly calculate the prime interest rate as the federal funds rate plus 3 percent (in this case 1.75 percent plus 3 percent). Every U.S. bank sets its own prime rate; however, most utilize the same one.

The Federal Reserve changes the interest rate based on its feeling about the direction in which the economy is moving. The Federal Open Market Committee convenes about every six weeks and may also hold emergency meetings if monetary policy merits discussion between scheduled meetings. When economic data show the economy doing well, the Federal Reserve looks to keep the interest rate the same or perhaps raise it; the opposite occurs when the economy shows signs of weakness.

While lenders usually use the prime rate to calculate many loan interest rates, it is not mandatory for them to use this rate, nor is it a law. For instance, a mortgage interest rate is frequently lower than the prime rate because the mortgage is secured with real estate as collateral, which limits the bank’s downside if the loan goes bad. The customer’s credit history also plays a role in the bank’s interest rate decision.

The all-time high for the prime interest rate was 21.5 percent in 1980. Since 2017 the prime interest rate has hovered between 4 percent and 5.5 percent. The recent rate cuts signify the FOMC has concerns about the economy, as it has reduced the prime interest rate by 0.75 percent this year. Not every existing loan is affected by rate cuts, however. For example, for a loan with a balance of $500,000 with a variable interest rate based on the prime rate, it would cost $3,750 less per annum in interest charges due to the 0.75 percent lower interest rate. If someone has a fixed interest rate loan, the amount of interest would not change because the interest rate does not vary and would not be impacted by any rate cuts.

While it may seem like a good thing to have lower interest rates, it may signal a slowing economy and may negatively impact the value of investments, such as retirement plans or stock holdings.

Read This Next

Introducing

FX Excursions

FX Excursions offers the chance for once-in-a-lifetime experiences in destinations around the world.

#globility

Insta Feed
Daily
Sep 30, 2022

Where to Go in 2023: International

It’s never too early to plan that next big trip. Look ahead to 2023 with travel inspiration from these international destinations.

Alaskan Wild Wonders by Celebrity Cruises

Experience the beauty of Alaska and save 60 percent off cruise fares on your second and fourth guests. Plus, drinks, WiFi and tips are all included.

Daily
Sep 30, 2022

10th Annual South Beach Seafood Festival

Tickets are now available for the 10th annual South Beach Seafood Festival, taking place this fall, Oct. 19–22. The region’s best seafood and South Florida’s top chefs and restaurants will be the focal point.

Daily
Sep 30, 2022

New Luxury Glamping Accommodations and More from Lovango Resort

Lovango Resort + Beach Club is the first newly built resort in the U.S. Virgin Islands in more than 30 years and prepares to return for its second season. Welcoming guests back Dec. 20, the resort will sport some new accommodations and guest experiences.

Alaskan Wild Wonders by Celebrity Cruises

Experience the beauty of Alaska and save 60 percent off cruise fares on your second and fourth guests. Plus, drinks, WiFi and tips are all included.

Daily
Sep 29, 2022

Michelin-Star Da Vittorio Launches Reverie Saigon in Vietnam

The world-renowned Italian fine-dining group with eight Michelin stars to its name, Da Vittorio debuts its new two-story restaurant, Da Vittorio Saigon in the hotel Reverie Saigon. The new restaurant reshapes Vietnam’s high-end culinary industry through its blending of contemporary and sophisticated design with traditional Italian food.

eFlyer News
Sep 28, 2022

More than 20 New Hyatt Hotels Coming to Latin America, Caribbean in 2024

Hyatt recently announced plans to open more than 20 luxury and lifestyle hotels and resorts in Latin America and the Caribbean through 2024. Some of these new openings include expansion of Hyatt brands into new markets.

Crowne Plaza and Holiday Inn Hotels Answer the Call for Business Travelers Seeking Flexibility

As the travel industry finds itself in the midst of the first peak travel season since the beginning of the pandemic, Crowne Plaza® Hotels & Resorts commissioned a survey of more than 1,200 U.S. consumers to learn more about business travel habits, learning 65 percent of Millennials, aged 25–44 years old, and 59 percent of Gen Z, ages 18–24 years old, prefer to work for a company offering frequent travel or flexible blended travel as a perk. Blended travel is the combination of business travel with leisure travel.

eFlyer News
Sep 28, 2022

Ulysses, a New Hotel by Ash, Opens in Baltimore

Hotelier Ash welcomes its fourth hotel, Ulysses, to its collection. Situated in Mount Vernon, Baltimore, the 116-room hotel features an all-day café and late-night drinking parlor. The new hotel lies within the historic, nine-story Latrobe Building, a former 1912 apartment building with an early Italian Renaissance design. The hotel earns its name, Ulysses, from a ship that brought Bavarian immigrants to Baltimore at the turn of the century. The name also pays homage to James Joyce’s legendary and revolutionary novel and to the Greek hero, Odysseus.