Will they, or won't they? That's the question on the minds of interest-rate watchers everywhere as the Federal Reserve gets set to meet this week. National Association of Federal Credit Unions President and CEO B. Dan Berger weighs in with what savers and borrowers can expect over the long haul.
Q: Interest rates have been so low for so long, and even when they do rise, it'll be extremely gradual. What's a saver to do?
A: This has been a tough environment for savers. It really emphasizes the need to shop for the best rates possible. Oftentimes, that will be a credit union — a not-for-profit, member-owned financial cooperative. Savers can go to www.CULookup.com to find interest rate comparisons between credit unions and banks, and also to find a credit union that they are eligible to join.
Q: Have the low rates been hard on credit unions and banks as well?
A: Yes. Credit unions exist to serve their members and do so by offering the best rates possible. That has been difficult in the current interest-rate environment. Nevertheless, nearly 105 million Americans are members of credit unions, and their ranks are growing every day as more and more people see the value and superior service offered by credit unions.
Q: How quickly do you expect rates on savings accounts to go up when the Fed finally acts?
A: It is likely to be a slow process.
Q: Why the lag time?
A: The first thing to remember is that we’re only talking about one-quarter of 1%. Using recent experience as a guide, there was hardly any impact on savings rates last December when the Fed raised rates. Secondly, the Fed has been extremely slow to raise interest rates. Depository institutions will likewise incorporate those interest rate adjustments into their savings products at a very gradual pace. Another issue is that there is a lot of liquidity in the financial sector at the moment. As that starts to ease we can expect increased competition for retail savings, and with increased competition comes better rates for savers.
Q: What can borrowers expect as rates start rising and how should they react?
A: It depends on the borrower. Generally speaking, borrowers of shorter-term credit, such as credit cards, will see the greatest immediate impact from a Fed rate hike. Longer-term rates will not be impacted as quickly. A rate hike is not likely to have much of an impact on mortgage rates, for example. So for borrowers, the old adage of paying off those borrowings with the highest interest rates first becomes even more important.
Q: What's the biggest misconception about credit unions?
A: Many people recognize that credit unions offer outstanding service, competitive rates and low fees, but many are not aware of how convenient credit unions are. Credit unions offer many of the bells and whistles of other financial institutions, including online banking. At most credit unions, you can open an account for as little as $5, and the majority still offer no-fee checking.