So something that doesn't happen often happened last week. The Federal Reserve Bank (aka America's Central Bank) decided to raise their federal funds interest rate to the range of 0.75% to 1.00% from the range of .25% to .50%. To put this rare occasion in perspective, the federal reserve raised its rate only 2 times since this dropped
Yep. This is only the 3rd time since 2006 that the federal reserve has raised its funds interest rate. So....
What the f*ck is the federal reserve?
Everyone makes the Federal Reserve to be this black box that controls money. The federal reserve is actually not one single building. It's a system. A system that has 2 jobs:
1. Prevent Inflation. (Make sure money doesn't lose value)
2. Keep unemployment low.
The federal reserve system is broken up into 12 districts:
The entire Federal Reserve System has a Chairman and her name is Janet Yellen AKA That cute lady in the picture at the beginning of this post. Each district is run by governors. These governors sit together along with the Chairman as the Federal Open Market Committee (FOMC) and vote on what the federal funds interest rate will be.
What's so important about this fed funds rate and why do I give a sh*t?
The federal funds rate is the interest rate banks lend money to other banks. It's also the base rate banks use decide the interest rate they will charge you for your student loans, your mortgage, your credit cards, small business loans, home equity lines of credit, and any other type of loans.
So how does the newest fed funds rate increase affect you?
With this new interest rate hike banks plan on increasing the interest rates of all adjustable, and variable rate loans. This also means fees on loans will increase. To give you a real life perspective it kind of looks like this:
If you currently have a $25,000 loan at 5% for 10 years your current payment is:
10 years (120 months)
$265 a month
Total cost of loan = $31,820
Now with the fed funds interest rate increase:
10 years (120 months)
Total Cost of Loan= $32,558
Mind you that's just your student loan. If you also have a credit card, or mortgage imagine a rate increase on all of these loans together? Life could get hella crazy.
How do I avoid the increase?
Refinance your loans.
Take advantage of good behavior. If you've been making your payments, refinance for a lower rate with your current bank. Banks love people who pay their bills and they reward them by dishing out lower rates when requested.
Refinance with a competitor.
Nothing hurts a bank more than when you leave them behind for another competitor. Use this to your advantage. Whether you stay with your current bank by negotiating for a lower rate or moving to a new bank for a lower rate all that matters is that YOU WIN.
Some banks to look at that are friendly with refinancing.
SoFi (short for Social Finance inc) is an online bank founded in 2011 that focuses on Millennial banking. Their approach to banking is to help make student loans affordable. Within the last year they have moved to personal loans as well.
CommonBond pairs student loans with investors. It also works with schools to lend money to MBA students.
Although it isn't a new startup bank, Citizen's bank has been aggressively looking to refinance student loans and credit cards.
This link also shows you other banks that are offering refinancing for student loans and their current rates ------> GEM
Remember y'all, our goal is to constantly find the best deals, and to stay on top of our money. Being active investors and deal searches saves you so much money in the long run.
Keep Stacking that paper y'all,
PS: To be honest, I'm not sure if the Federal Reserve is the illuminati or not, That's some top secret government clearance information and I don't have access to that.................. yet.