Fed Pays Banks 150 Billion to Sit On Cash | Stewardship Concepts Financial Advisors

Happy Friday, everyone! This week, we had our Christmas party with our team. Having dinner in a bubble at Crafted Tap House was a great time! If you have yet to go, we recommend it. On Fridays at 10 pm, they even have turtle races where you can bet on the winner! Thank you for joining me today for two minutes on the economy, an interesting story, and a financial planning secret.

Economy – Inflation Ticks Up

The market is almost at a 100% chance that interest rates will lower by another quarter percent. We have a strong labor market, and even though the last inflation numbers came in slightly higher, we've made significant progress since the highs. Even though we'll see a rate cut, analysts suggest we'll be in a restrictive interest rate level until the 3.5% range (currently, we're at 4.5-4.75%).

Interesting Story – Fed Pays Banks 150 Billion to Sit On Cash

After 2008, many changes occurred in our financial system. Lots of changes happened with requiring banks to hold reserves. One significant change was that the Federal Reserve started paying interest on the required and excess reserves held by banks, which is called IORB (interest on reserve balances). The goal is to encourage banks to hold reserves instead of lending cash; thus, the Fed can control the money supply in our economy. This has been "okay" since we've had low interest rates since 2008. But now, with rising interest rates, the Fed's (also known as taxpayer's) cost has snowballed. Banks are expected to make over $150 billion this year by sitting on cash.

Financial Planning Secret – HSA (Triple Tax Savings!)

For those with high-deductible health plans, an HSA is a powerful tool. A Health Savings Account offers a powerful way to save for medical expenses with significant tax advantages. Contributions to an HSA are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are tax-free, making it the only account with triple-tax benefit. HSAs are flexible, allowing unused funds to roll over year after year and will remain with you even if you change jobs or retire. Additionally, HSAs can be invested, offering the potential for long-term growth to cover future healthcare costs. We love these accounts and consider them a retirement asset like a 401k. You'll most likely use every penny in them because medical expenses will grow over time.

If you're looking to fine-tune your financial plan or navigate today's economy, schedule a no-cost, no-obligation discovery call with one of our Spokane financial advisors.