The Current Financial Environment

FIS/260-Financial Markets & Institutions: You Can Bank On It
Michael Ricks

When I first took a look at this assignment I thought it would be easier than it this. I looked for days on the internet trying to find banks or depositories with credit cards with variable interest rates. What I found was many banks with many credits all with annual percentage rates (APR). So to keep my insanity I just looked at three commercial banks. I looked at Bank of America, US Bank, and Regions bank. I looked at all their credit cards student, business, rewards, and secured. Bank of America credit cards Apr varied anywhere from 12.99% to 20.99%. Here is how they get people, 0% introductory APR for the first 12 billing cycles only for purchases. When that cycle ends your rate will depend on your creditworthiness. US Bank does similar and their rates are from 11.99% to 23.99%. Regions is in the same neighborhood starting at 13.99%, 16.99%, or 19.99% based on credit, but can quickly climb to 24.99% or even 29.99%. Every bank I researched, including credit unions, all based the rate that you would receive on your creditworthiness when you open your account. After that, your APR will vary with the market based on the Prime Rate as set out in the Variable-Rate information section of your agreement. The current annual percentage rate (APR) for a new car can vary from bank to bank, amount to amount, and year to year. It is not something that is set in stone. I looked at PNC bank, US Bank, and St. Louis Community Credit Union for this part of the research. At PNC Bank the annual percentage rate on a loan amount from $15,000 to $49,999 with the model year of the vehicle of 2010 or later is 2.75% to 3.39%. If you pay the loan off in between 12 to 60 months the APR is 2.75%. If you lower your payments and it takes longer to pay it off in 61 to 72 months the APR jumps to 3.39%. So at PNC Bank the current APR is 2.75% to 3.39%. The APR at US Bank as of December 17th, 2011 on an auto loan for $50,000 is 2.95% to 5.97%. They break it down by terms such as 36 month loan the APR is 2.95%, 48 month is 3.72%, 60 month is 3.96%, 72 month is 4.96% and 84 month is 5.97%. At St. Louis Community Credit Union the current rates have been effective since June 1, 2011and goes has follows, new autos 2010-2012 loans up to 60 months APR is as low as 3.49%, 66-72 months (minimum $20,000) 3.99%, and 73-84 months (minimum %25,000) 4.99%. As always rates are subject to change and they all depend on the person applying for the loan credit history. If you have a low credit score, that low score will result in a higher rate, but higher the credit score the lower the rate. The current interest rate on a 30-year fixed mortgage on a house that is $100,000 and is being purchased is 4.000% at US Bank and Bank of America. The rate on the same house through PNC Bank is 4.125%-4.500% depending on credit worthiness. This rate is subject to change anytime before you get locked in after signing papers. With a 30-year fixed loan it gives you the flexibility to refinance at a lower rate. As of this week the current prime rate is 3.25% which is the same rate it was a month ago as well as one year ago. Since been updated on December 14, 2011 the current federal funds rate is 0.25% which is the same from a month ago and a year ago. As of a year ago, a month ago, and as of December 14, 2011 the current Federal Discount Rate is 0.75%. Since the year is completely finished yet, the GDP for 2011 is not available right now, but as of the completion of 2010 the current GDP is $14,586,736,313,339 and climbing or we can just say $14.58 trillion. From my research and just living life I know since 2007 we have been in a recession or lesser depression. I have noticed jobs being loss and unemployment rates soar. I have seen the value of the dollar decrease and the bailout of major corporations. I have seen the housing market becoming a buyers’ market, with rates at the lowest they have ever been. I have seen oil and gas price sky rocket and as a result of that everything go up, except wages. But with the gas prices seem to be lowering and stabilizing, and unemployment rates coming down month by month I would say that we have seen the worst days of this recession. I believe we are starting to see the light at the end of the tunnel. I know we still have a ways to go. The rates on credit cards and loans are really high, I guess they are still trying to stabilize the economy. With the less money out there then the value of the dollar goes back up. Then when the economy slows too far down then I am guessing the rates will come back down and people will start getting loans again. But that cannot happen until the employment rates continue to fall. When people have an excess of money then they will spend on different things than just their bills. When people begin buying merchandise then you will see our economy grow and begin to boom and thrive as it once did before. But as we all know history repeats itself, so the question is not when it will happen, but how bad it will be? December 16, 2008 was the date of the last decrease of the federal funds rate. The amount of change was 75-100 which brings us to the current level of 0-0.25%. It was done for the long-run goals of price stability and sustainable economic growth. The federal funds rate, discount rate, and the prime rate all tie together and all need each other. The Federal Funds Rate is what banks charge one another for overnight use of excess reserves. Banks avoid dipping below their required percentage of money on reserve by borrowing from one another. The Fed uses the federal funds rate to control the supply of available funds, essentially controlling inflation. If the Fed rate is low, banks will borrow and grant more loans, which in turn feeds the economy. If the Fed wants to slow things down, they will raise the federal funds rate, which will keep banks from borrowing and reduce the amount of new loans. The Discount Rate is the interest rate the Fed offers to member banks and thrifts who need to borrow money to avoid having their reserves dip below the required minimum. The higher the discount rate, the higher mortgage interest rates will be. When the discount rate goes up, the prime rate goes up as well, which slows the demand for new loans, and cools the housing market. This also works in reverse to boost the housing market also. The Prime Rate is the interest rate offered by commercial banks to its most valued corporate customers. The prime rate is also the basis for many mortgage programs. The prime rate always adjusts according to how the Fed changes the discount rate. The fed funds rate is the primary tool that the Federal Open Market Committee uses to influence interest rates and the economy. Changes in the fed funds rate have far-reaching effects by influencing the borrowing cost of banks in the overnight lending market, and subsequently the returns offered on bank deposit products such as certificates of deposit, savings accounts, and money market accounts. Changes in the fed funds rate and the discount rate also dictate changes in the Wall Street Journal Prim Rate, which is of interest to borrowers. The prime rate is the underlying index for most credit cards, home equity loans, and lines of credit, auto loans, and personal loans. So when the fed fund changes, it will affect me as an individual. When it is favorable, is when I can walk into a bank and not really have a hard time getting a loan, because the rates are low and it something I can afford. But when it goes the other way and the bank really do not want to give loans, so the hike up the interest rates.

References https://www.pncmortgage.com/mortgage_interest_rates.aspx?AppType=2&LoanAmount=100000&ZipCode=60515 Retrieved on December 17, 2011 http://www.usbank.com/cgi_w/cfm/personal/products_and_services/mortgage/interest_rates.cfm Retrieved on December 17, 2011 http://www.usbank.com/credit-cards/compare.html Retrieved on December 17, 2011 https://www.applyonlinenow.com/USCCapp/Ctl/entry?sc=VAA9XW#b Retrieved on December 17, 2011 https://www.stlouiscommunity.com/loans-and-credit-cards/loan-services/loan-rates Retrieved on December 17, 2011 https://www8.bankofamerica.com/home-loans/mortgage-purchase/TodaysRateResults.go?referrer=/home-loans/mortgage-purchase/rates Retrieved on December 17, 2011 https://www.bankofamerica.com/credit-cards/marketinglist.action?context_id=marketing_list&category_id=2002 Retrieved on December 17, 2011 http://www.bankrate.com/rates/interest-rates/prime-rate.aspx?ec_id=m1027770 Retrieved on December 17, 2011 http://data.worldbank.org/indicator/NY.GDP.MKTP.CD Retrieved on December 17, 2011 http://www.thetruthaboutmortgage.com/discount-rate-prime-rate-and-the-federal-funds-rate/ Retrieved on December 17, 2011 http://www.federalreserve.gov/monetarypolicy/openmarket.htm Retrieved on December 17, 2011