Regulation D: How Does It Affect Me?

Have you ever wondered about the real differences between your savings and checking accounts? Many people realize there must be more to it than just the fact that one includes checks and the other does not. However, they just don’t know what those differences are. So let’s look at some of the technical differences that define each account type. 

Reserve Requirements
 

Did you ever wonder how much cash your credit union keeps in its vaults? It’s not all the money that members have deposited into their accounts. If that were the case, the credit union could never lend or invest money, and you could never earn any dividends on your deposits. Your credit union would simply function as a gigantic communal piggy bank.
There are laws determined by the Federal Reserve’s Board of Governors, called reserve requirements, which govern how much cash financial institutions (including credit unions and banks) must hold in reserve against the accounts at that institution. The portion of federal regulations that contain these rules is called Regulation D – Reserve Requirements of Depository Institutions.
The percentage of funds that must be kept by institutions is currently 10%. But here’s the catch: Only accounts that are defined as “transaction accounts” are considered when calculating this ratio. Other types of accounts do not have the same requirements. If you think about it, it makes perfect sense.
Transaction accounts, such as checking accounts, are used by account holders on a daily basis for their personal finances. That being the case, there is a great likelihood that the credit union will need to come up with a portion of those funds each day. On the other hand, non-transaction accounts, such as savings accounts and money markets, are intended more for long-term savings, so account holders usually leave the deposited funds in the account to grow over longer periods of time.
This also explains why savings accounts frequently offer higher dividend rates than checking accounts do: because financial institutions can use more of the funds on deposit to make money with savings deposits than they can with checking deposits.
Transaction Vs. Non-Transaction Accounts
What accounts fall into the category of transaction accounts? These include demand deposit accounts, also called checking accounts and NOW (negotiable order of withdrawal) accounts.
What characteristics do transaction accounts share? The depositor is allowed to make an unlimited number of payments and transfers from the account to third parties as well as to other accounts belonging to the depositor. The account holder can perform these transactions in various ways, such as by writing checks and by using a debit card and online payment services, among others.
Which accounts are non-transaction accounts? These include savings accounts and money market accounts. What characteristics do they share? Firstly, financial institutions must reserve the right to require at least seven days of written advance notice before account holders intend to make a withdrawal. This right is rarely if ever exercised, but it is included in the account agreement. Additionally, the account holder is limited to making no more than six “convenient” transfers or withdrawals per month.
These “convenient” transfers include preauthorized automatic transfers, transfers and withdrawals requested by phone, fax or made online, checks written to third parties and debit card transactions. Less convenient transactions, however, are unlimited. This includes any transactions made in person, by mail or at an ATM, and phone withdrawals requesting a check mailed to the account holder.
If a depositor tries to exceed the six-per-month transaction limit, the financial institution is required to refuse transfer privileges or convert the account into a transaction account. When this happens to them, many people are unaware of the laws in Regulation D (and never bothered to read their account agreement) and think their credit union or bank has a strange policy. But the truth is, if you don’t like it, you’re going to have to take it up with the Federal Reserve. Your financial institution is just following regulations.
Of course, there are simple solutions that allow savings account holders to avoid the issue. If you need to make more than six payments or transfers from your savings account, you must be up for a little more inconvenience and may need to complete the transactions in a less high-tech method than usual.
Your Turn: Did you ever discover, by mistake, that your savings account has limits to the number and type of transactions? What happened, and how did you deal with it? Share the experience with us in the comments.

Rising Interest Rates: What Do They Mean For You?


If you read financial headlines, you’ve no doubt seen the news that the Federal Reserve is raising interest rates. These headlines can be accompanied with all sorts of hyperbole about the end of the stock market, the boom of bonds or any of a dozen other possible predictions. It’s easy to get overwhelmed when there’s this much information and so much of it is conflicting. Let’s set the record straight on what rising prime interest rates mean for you.
The prime interest rate is the rate that the Federal Reserve charges financial institutions to borrow from it. It influences a lot of other financial prices. Many of these are only of concern to investment bankers, professional investors and other economic enthusiasts. Here are some key ways the prime rate hikes can affect you!
1.) Think about your ARM
Many people opted for adjustable-rate mortgages (ARMs) when interest rates were historically low. These mortgages often have much better rates for an introductory period, usually five years (please note – a Destinations Credit Union ARM holds the rate for 10 years), before they adjust to a new rate. That new rate is determined in large part by the rate the Federal Reserve charges.
The Federal Reserve is planning to continue to increase interest rates as the economy continues to improve. This means the rate on your ARM may go up as well. Worse yet, the rising rates could make your monthly mortgage payment unpredictable, putting you in a bit of a budget bind. Fortunately, you can refinance your mortgage into a fixed-rate loan and take advantage of still-low interest rates. You may still be able to secure a low rate on a 10-, 15- or 30-year fixed-rate mortgage. As interest rates continue to rise, your fixed-rate mortgage will stay the same, meaning your savings will increase as time goes on.
2.) Balance your portfolio
The historically low interest rates over the past six years have done wonders for the stock market. Because companies could borrow at affordable rates, they could expand rapidly. That expansion fuels growth in stock prices.
As interest rates rise, that credit availability will decrease. Companies will find it more difficult to expand, and their growth will slow. This slowing of growth may lead to a decline in stock prices.
However, as interest rates rise, bond rates will also increase. That will lead to an increase in their price as more investors chase those rates. Individual investors need to ensure their portfolios are properly balanced to take advantage of changing market conditions. Speaking to a financial adviser to ensure your assets are where they need to be will help keep your investments growing at a healthy rate.
3.) Save more
The Federal Reserve interest rate also affects the rates that financial institutions are able to offer account holders. As it becomes more expensive to borrow from other institutions, it’s more profitable for those institutions to “borrow” from their members in the form of certificates and savings accounts. As interest rates continue to rise, it’ll be increasingly more profitable to sock your money away in an interest-bearing account.
If you’ve been putting off opening a certificate or increasing the deposits in your share account, now is an excellent time to consider it. With a 12- or 24-month certificate, you can take advantage of rising interest rates while still leaving yourself the flexibility to re-invest once interest rates rise again.
4.) Refinance your debt
The service charges on several kinds of debt are tied to the prime rate. Notably, credit cards and private student loan rates may increase as the prime rate continues to climb. That makes now a great time to think about refinancing.
Take advantage of currently low interest rates with several strategies. A home equity line of credit can help bundle your high-interest, unsecured debt with your low-interest mortgage. A personal loan for refinancing can also help secure a better interest rate. Other options exist, and the sooner you speak with a debt counselor or other financial professional, the better off you’ll be.
It’s easy to get overwhelmed by all the financial terminology surrounding news events like rate hikes. That’s why it’s best to have an advocate in your corner to help you figure out what to make of a changing economic landscape.  Destinations Credit Union can do just that. Call, click or stop by to speak to a member services representative about how you can take advantage of this opportunity and put yourself on the path to financial wellness.

Your Turn: Got questions about rising interest rates? Leave your questions in the comments. Or, if you’ve got a handle on all things economic, share your wisdom with others!


It’s Not Time To Panic


It’s time to be calm, but you know that already.  The market has had a crazy week, filled with ups and downs flowing at a quick enough pace to ensure – if you were going into a meeting to discuss market forecasts – you really couldn’t write up an actionable plan.  You could have just as easily relied on an iPhone and a Magic 8 Ball.


Analysts don’t like that kind of uncertainty, so if you feel like the advice you’re getting on TV is aimed at making you panic, you’re probably right. However, don’t let other people’s panic make you panic.  In fact, when everyone else is panicking, it’s the calm person who can actually get something done.  


But the markets will open tomorrow and something could happen. Who knows? And if that something does happen, how do you keep from entering into a panic mode?  How can you resist the urge to pull all your money out of savings or rethink your entire retirement?  We’re going to explain why staying calm is the most important thing you can do, but let’s first play a game.  It’s really quick and it simulates the market using actual history.  

The rules: Start with $10,000.  You can sell once, you can buy once, and then it tells you how much you made or lost.  Open this link in a new tab by either copying and pasting or right clicking on the link (options will vary depending upon your web browser):

How did you do?  Did you play it a few times?  Did it go better when you sold your investments when the price dipped?  That game is based on market trends for the last 35 years or so, and the only real way to win is to just not sell.  Your money will go up and up and up.  The market rewards calm. Here’s why you should relax:


The Fed knows what it’s doing.  The new administration at the Fed has kept interest rates low, and many analysts have been expecting a rate hike throughout 2015, with some of them even predicting two increases.  A rate hike would be bad news for Wall Street, and the same market prognosticators who claim the sky is falling are pointing to an impending rate hike as “Exhibit A” that your retirement is doomed.  First of all, there’s no guarantee that a rate hike is coming. Even if the Fed raises the prime interest rate, it may be good for your stocks, because uncertainty over interest rates is part of the reason the market has taken a hit.  A rate hike, particularly a modest one, could calm fears about the uncertainty of interest rates in the future.


A rate hike also helps your savings.  Every dollar in your savings accounts – from money markets to IRAs – will get stronger when there is a higher prime interest rate.  So, if you’re convinced interest rates are going to take a bite out of your investments, your best move is to simply decrease the portion of your portfolio in stocks and put more of it into various savings products at Destinations Credit Union.
  We’ve always had very competitive dividend rates on our savings accounts.  If the Fed raises interest rates, that usually means good news for savers.


China’s problems won’t hurt us.  While their currency is in crisis, and that has spilled over into other market sectors, it’s premature to panic over market instability at the world’s largest manufacturer.  The economic interconnection between the US and China, the world’s two largest economies, is not the kind that allowed the 2008 financial crisis to spread so quickly. In fact, it’s the kind that prevents that type of spillover.  In general, they manufacture goods and we market/buy them.  The stronger our currency is relative to other countries, the cheaper we can find consumer products.

For example, if Walmart were an independent nation, it would be China’s fourth largest trading partner.  Our largest brick-and-mortar retailer stands to profit, as do their customers.  In other words, if you leave your retirement funds in your savings and trust your credit union to take care of you, you can probably find everything you were going to buy for less, so you don’t need as much cash to live on while you wait for the market to recover.  You can spend less without making sacrifices.


The other benefit to the US economy stemming from China’s hiccup is that it likely means durable goods will sell well. Families that have “made do” with a lukewarm refrigerator or the world’s slowest dishwasher can find replacement appliances at more affordable prices. To put it in simpler terms:  You’re finally going to replace that stove you hate, and so will your neighbors.  You’ll save money on it, and the American businesses that design and sell that stove are going to enjoy the profits.  Those companies will turn the profits into increased manufacturing, which will help stabilize the Chinese economy.  The durable goods sector is going to help buoy the stock market, which will help the overall economy in the process.


If you want to take advantage of this temporary window, talk to us about a home improvement loan.
Remember, if you want to make these kinds of household investments or take advantage of cheaper prices on the parts and supplies that go into other home improvement projects like patios and even driveways, lock in a fixed-rate loan now, before the Fed hikes interest rates.


In the end, market forces are driven by consumer confidence, and your household economy is no different.  Think back to that game you just played. Waiting out temporary market downturns or moving your money to safe savings programs are the only way to consistently grow your money in the long-term. Put your money with someone you trust, take a deep breath, and stay calm.

If you need a calming mantra, try this:  “New washer.  New dryer.  New washer.  New dryer.”
Sources:

http://www.thestreet.com/story/13264176/1/what-me-worry-why-you-shouldnt-panic-amid-market-crash.html