Federal job cuts often spark debates between those who rely on government services and those who think spending should shrink. But the reality is more complex. As layoffs unfold, it’s clear that the effects ripple well beyond government offices, impacting employment, wages, and economic growth for everyone.

Government job cuts so far

February’s employment report was below the standard of recent months. Job gains of 151,000 were below the average of 168,000 for the prior 12 months. A closer look at the numbers suggests they could get much worse.

In February 2025 alone, the government announced over 60,000 job cuts. And yet, February’s jobs report stated that federal government employment declined by just 10,000 jobs. It seems the bulk of the job cuts are not yet reflected in the official employment numbers.

Many more job cuts are expected. And the disruptive environment may also lead to an upturn in resignations.

Beyond the decline in federal jobs, such massive layoffs will likely have much broader impacts.

Broader impact on jobs and wages

The news has been full of images of tearful workers carrying boxes of their personal items out of government offices after they’ve been laid off. You may or may not feel sympathy for these workers. Either way, you might like to be aware of the impact of the layoffs on your job situation. Over the last three years, workers have generally benefitted from a robust job market.

• Unemployment has been much lower than usual. Over the past three years, the unemployment rate has averaged just 3.8%, far better than the 50-year average of 6.2%.
• Wage growth has been strong. Over the past three years, the average wage growth rate has been 5.5%. That’s clearly above the inflation rate of 4.1% over that same period. It’s also better than the historical average wage growth rate of 3.8%.

These two things are related. Naturally, when the unemployment rate is low, finding a job is much easier. Also, low unemployment creates a strong labor demand, forcing employers to pay higher wages.

These conditions may change rapidly. Not only will laid-off federal employees have to look for new jobs, but anyone else looking for work will suddenly find much more competition. In the months ahead, many more former government workers will go after private sector jobs.

This sudden surge in the labor supply could also affect wages. When job seekers are plentiful, employers know they don’t have to pay as much to attract and keep workers. This could stunt wage growth in the future.

Impact on consumer spending

Beyond the impact on employment, job cuts can also dent economic growth. Personal consumption represents just over two-thirds of GDP. Strong consumer spending has been a key factor in recent economic growth.

However, the tens of thousands of workers sidelined represent many consumers who will be spending less rather than more. This would make GDP growth harder to sustain.

Impact on government contractors

The cuts to federal jobs could lead to secondary cuts by businesses that depend on the federal government. This includes government contractors who see cuts to spending programs for their goods and services.

It also includes ordinary businesses in areas with large numbers of government employees. Whether it’s a department store or a restaurant, when unemployment rises in an area, employers in that market feel the pinch. That could jeopardize the survival of some of these businesses or at least force them to make layoffs.

Preparing your finances

Massive cuts in federal jobs and programs could affect your finances even if you don’t work for the federal government. Here are some ways to prepare:

• Consider how vulnerable your job is. If your employer is a government contractor or serves a market with a heavy concentration of government employees, you might consider a move to an employer less sensitive to federal cuts.
• Pay down debt. Rising unemployment and slower wage growth could make it more challenging to make ends meet in the months ahead. That could make debt more burdensome.
• Get your credit score in the best possible shape. While you should be reducing debt, you still want to maintain your access to credit. If the economy weakens, expect lenders to tighten standards. Raising your credit score may allow you to continue to meet their standards.
• Build up emergency savings. This is the best way to weather a financial storm. Emergency savings help you avoid the expense of borrowing to make it through hard times.

Navigating the impact of federal job cuts

Federal job cuts have already begun to reshape employment dynamics. While initial effects are visible, the full ripple effect on wages, spending, and private-sector hiring may take time to unfold.

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Financial technology (fintech) is revolutionizing how people manage their money, offering more control, convenience, and security than ever before. From artificial intelligence-driven budgeting tools to blockchain-based transactions, fintech innovations are reshaping personal finance to empower consumers.

Enhanced credit monitoring and fraud prevention

With the increasing digitalization of financial transactions, credit monitoring, and fraud prevention tools have become more sophisticated. Real-time credit score tracking, identity theft alerts, and AI-driven fraud detection help consumers protect their financial well-being.

These tools provide greater awareness and security, reducing the risk of identity theft and unauthorized transactions. Financial institutions and credit monitoring services now offer dark web monitoring, which scans for stolen personal information to alert users of potential breaches before they lead to financial damage.

AI-powered financial assistants

Artificial intelligence plays an increasing role in personal finance, helping users track spending, manage budgets, and even make investment decisions. AI-driven financial assistants can analyze transaction patterns, predict future expenses, and offer personalized financial recommendations.

These tools help consumers make informed decisions without needing extensive financial knowledge. Many banks and fintech companies now offer AI chatbots that can answer financial questions, provide savings suggestions, and even automate bill payments based on user spending habits.

Digital banking and mobile-first services

Traditional banking is no longer the default choice for many consumers, as digital banks and mobile-first financial services provide seamless, user-friendly experiences. Online-only banks often offer lower fees, higher interest rates on savings, and real-time transaction tracking.

Features like instant payments, automatic savings, and fraud alerts help consumers stay on top of their financial health with ease. Additionally, mobile wallets such as Apple Pay and Google Pay have simplified transactions, making it easier than ever to conduct secure, contactless payments both in-store and online.

Buy now, pay later (BNPL) is reshaping credit access

The rise of buy now, pay later services is changing the way people make purchases. By offering interest-free installment payments, BNPL services provide a flexible alternative to traditional credit cards. However, as BNPL data becomes integrated into credit scores, consumers must use these services responsibly to avoid potential negative impacts on their financial profiles.

Some financial experts warn that easy access to installment payments can lead to overspending, causing financial strain if users fail to manage their payments properly.

Blockchain and decentralized finance (DeFi)

Blockchain technology is expanding beyond cryptocurrency to power decentralized finance (DeFi) solutions. These innovations enable peer-to-peer lending, digital asset exchanges, and automated financial contracts without relying on traditional banks.

DeFi offers increased accessibility and transparency, but consumers must navigate potential risks, such as regulatory uncertainty and security vulnerabilities. Despite these challenges, DeFi is growing rapidly, with many investors looking to decentralized platforms for alternative financial opportunities.

The role of robo-advisors in investing

Robo-advisors are AI-powered investment platforms that help consumers build and manage diversified portfolios with minimal effort. These platforms use algorithms to assess risk tolerance, recommend asset allocations, and automatically rebalance portfolios.

Robo-advisors have made investing more accessible by offering lower fees than traditional financial advisors and allowing individuals to start with small investments. As more people turn to automated investing, robo-advisors continue to refine their strategies to offer more personalized financial solutions.

The growing impact of biometric security in fintech

Security concerns remain a top priority in fintech, and biometric authentication is emerging as a key solution to enhance financial security. Fingerprint scanning, facial recognition, and voice authentication are increasingly used to verify identity in banking apps and payment platforms.

These technologies not only improve security but also enhance user experience by eliminating the need for complex passwords. As cyber threats evolve, biometric security will play a vital role in protecting consumers’ financial data.

The future of fintech innovations

Fintech is giving individuals more control over their financial lives, making it easier to save, invest, and manage credit. As technology evolves, consumers should stay informed about new financial tools and best practices. Emerging trends such as biometric authentication, voice-activated banking, and predictive financial analytics are set to enhance the fintech landscape further.

By leveraging fintech innovations wisely, people can enhance their financial security and take advantage of new opportunities in the digital economy.

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In 2004, America’s Cyber Defense Agency declared October Cybersecurity Awareness Month. The intention was to raise awareness around the importance of cybersecurity. Twenty years later, cyber threats continue to evolve, and protecting your online banking activities has never been more important. The convenience of managing your money online is accompanied by significant risks, but understanding those risks—and how to counter them—can help you stay secure. October 2024 is a good time to revisit the steps we can all take to safeguard our financial information.

Common cyber threats in online banking

• Phishing scams. Cybercriminals may try to trick you into revealing sensitive information, like your bank login details, through fake emails or text messages that appear to be from your bank. Always verify the sender before clicking on links.
• Malware and ransomware. Malicious software can infect your devices, allowing hackers to steal sensitive data or lock you out until a ransom is paid. Protect your devices by installing reputable antivirus software.
• Data breaches. Large-scale data breaches at financial institutions can expose customer data to hackers. You personally cannot prevent breaches, but you can safeguard yourself by using secure passwords and monitoring your accounts for unusual activity.
• Account takeovers. If a hacker gains access to your account through stolen or weak passwords, they can drain funds or make unauthorized transactions. This makes it critical to stay on top of your account security.

How to protect yourself in online banking

• Use strong, unique passwords. Make sure your bank account password is complex and not reused across multiple sites. A password manager can help you generate and store strong passwords.
• Enable multi-factor authentication (MFA). Whenever possible, set up MFA for your bank accounts. This adds an additional security layer, such as a one-time code sent to your phone or biometric authentication, like a fingerprint.
• Be skeptical of communications. Never provide personal information in response to emails or messages claiming to be your bank, especially if they are unexpected or unusual. When in doubt, contact your bank directly through their official website or app.
• Keep your devices updated. Regular updates to your operating system and apps provide vital security patches to protect against known vulnerabilities.
• Monitor your accounts regularly. Frequently check your bank accounts for unauthorized transactions. Early detection can help prevent significant losses.
• Avoid public Wi-Fi. Never access your online bank account over public Wi-Fi, which can be insecure and easily intercepted by cybercriminals. If necessary, use a VPN for added protection.

Why banks have strong security measures

Many consumers wonder why setting up or managing accounts online can be complex. Financial institutions implement strict security measures to comply with consumer protection laws and safeguard against evolving cyber threats. These security features, like identity verification and transaction monitoring, are designed to prevent fraud and protect personal information.

Emerging technologies in banking security

Banks continue to adopt new technologies like blockchain and biometric authentication to improve security. These tools offer promising enhancements, but consumers are wise to stay informed and vigilant about the changing landscape of cyber threats.

Staying safe from cyber threats in online banking requires a proactive approach. By following simple security practices like using strong passwords, enabling MFA, and staying alert to phishing scams, you can protect your financial information and enjoy the convenience of managing your money online.

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Consumer banking in the United States has evolved significantly, shaped by key historical developments, technological innovations, and shifting consumer behaviors.

A brief history of consumer banking

The roots of consumer banking in the U.S. can be traced back to the late 18th century, after the American Revolution, when the nation’s first central bank, the First Bank of the United States, was established in 1791 to support the new nation’s economy. Before this, during the colonial period (1607–1776), financial practices were informal, relying on bartering, commodity money, and local credit systems. The modern concept of consumer banking, with accessible products like savings accounts, loans, and checking accounts, emerged in the late 19th and early 20th centuries.

A significant turning point came with the establishment of the Federal Reserve in 1913. This created a central banking system designed to regulate banks and stabilize the financial system. The Great Depression further influenced banking by introducing federal deposit insurance to protect consumer deposits. After World War II, the U.S. economy boomed, and consumer banking services expanded rapidly, helping Americans access home loans and credit to fuel their pursuit of the American Dream.

The introduction of credit cards in the 1950s revolutionized consumer spending, allowing individuals to borrow money for immediate purchases and repay it over time. The deregulation of the banking sector in the 1980s and 1990s facilitated further innovation, leading to today’s digital-first landscape, where online banking and fintech solutions dominate.

Key consumer banking services

Consumer banking offers a wide range of services catering to the diverse financial needs of individuals.

• Checking and savings accounts. Checking accounts provide easy access to funds for daily transactions, such as bill payments and withdrawals. In contrast, savings accounts allow consumers to set aside money for future needs and earn interest. These are the foundational products of any consumer banking relationship.
• Certificates of deposit (CDs). CDs offer a low-risk investment for consumers who want to earn a higher interest rate than what is offered in a savings account. However, they require a fixed deposit period, during which withdrawing funds typically incurs a penalty.
• Credit cards. Credit cards are an essential tool in consumer banking, offering short-term loans that consumers can use to make purchases. While they provide convenience, credit cards must be managed responsibly to avoid high-interest debt.
• Loans and mortgages. Consumer loans and mortgages are among the most important services offered by banks. Loans help individuals finance everything from cars to home renovations, while mortgages are crucial for those looking to buy a home.
• Investment products. Many banks offer a variety of investment products, including mutual funds, exchange-traded funds (ETFs), and retirement accounts like IRAs. These products allow consumers to grow wealth and save for long-term goals like retirement.
• Insurance products. Some banks provide access to insurance products like life, auto, and homeowners insurance. These products offer consumers a way to protect themselves and their assets from unforeseen events.

Current trends in consumer banking

The banking industry has undergone profound changes in recent years due to the rapid adoption of technology and changing consumer expectations.

• Digital banking. With the rise of smartphones and internet access, consumers increasingly opt for online and mobile banking services. This shift allows for instant transactions, mobile check deposits, and 24/7 access to accounts. Many traditional banks now offer robust digital platforms, while digital-only “neobanks” provide simplified, low-fee or fee-free banking experiences without physical branches.
• Fintech integration. Financial technology (fintech) companies are revolutionizing consumer finance. They offer peer-to-peer payments, digital wallets, simplified investing, and credit management tools. This pushes traditional banks to innovate and integrate fintech solutions into their own platforms.
• Open banking. Open banking is an emerging trend that allows consumers to share their financial data with third-party providers through secure APIs. This creates more competition, fosters innovation, and leads to personalized banking services. It also enables consumers to use multiple financial products seamlessly across different platforms.
• Personalized banking. Data analytics and artificial intelligence (AI) are transforming the way banks offer services. Banks can use advanced data tools to create customized offers and recommendations tailored to individual spending habits, financial goals, and behaviors. This shift towards personalization helps consumers make better financial decisions and strengthens their relationship with their banks.
• Environmental, social, and governance (ESG) focus. Increasingly, consumers are considering the social and environmental impact of their banking choices. Many banks now offer ESG investment options or align themselves with sustainable practices to attract eco-conscious consumers.

Challenges facing the consumer banking sector

Despite technological advancements, the consumer banking sector faces several pressing challenges:

• Cybersecurity and data protection. As more consumers move online, cybersecurity threats loom larger. Banks are frequent targets for cybercriminals, and breaches can compromise sensitive personal information, eroding consumer trust. To combat this, banks must invest heavily in security infrastructure, including encryption, two-factor authentication, and real-time fraud monitoring.
• Financial inclusion. Although consumer banking has become more accessible, millions of Americans remain unbanked or underbanked. Factors such as lack of trust in financial institutions, high fees, and insufficient identification can prevent people from accessing banking services. Bridging this gap is a priority for banks aiming to serve all demographics.
• Regulatory compliance. Banks must navigate an increasingly complex regulatory landscape. In addition to complying with long-standing rules, like the Truth in Lending Act (TILA) and Fair Credit Reporting Act (FCRA), banks must also stay current with data privacy laws and anti-money laundering (AML) regulations. Balancing compliance with the need for innovation is a delicate act.
• Economic uncertainty. Interest rate fluctuations, inflation, and economic recessions significantly impact the consumer banking sector. As the economy faces global uncertainties, including those related to the COVID-19 pandemic and geopolitical instability, banks must remain agile and prepared for the financial challenges of these changes.

The future of consumer banking

The future of consumer banking in the U.S. will likely be shaped by continued technological innovation, increased personalization, and a growing emphasis on financial wellness. Banks must adopt cutting-edge technologies like blockchain, AI, and machine learning to offer more secure and efficient services. At the same time, consumers will expect seamless, personalized experiences that cater to their individual financial needs.

In this evolving landscape, banks must prioritize responsible lending practices and financial literacy, ensuring customers have the tools and knowledge to manage their finances effectively. Additionally, as sustainability becomes more important for consumers, banks that integrate ESG principles into their operations and offerings will stand out.

Consumer banking in the United States has come a long way, adapting to technological advancements and shifting consumer preferences. From traditional savings accounts to cutting-edge digital banking platforms, the industry continues to evolve in response to new challenges and opportunities. As we look toward the future, banks must embrace innovation, prioritize cybersecurity, and address financial inclusion to remain relevant in an increasingly digital world.

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A handful of government reports last week focused on the same problem: financial fraud. Fraud is a true growth industry based on the number of attempts and victims and the variety and sophistication of financial scams.

Creative crooks are constantly dreaming up new ways to separate you from your money, so you may not always recognize a scam. It’s good to have some common sense principles to help you avoid becoming a victim.

Scams by numbers

Scams were up in 2023. The Federal Trade Commission (FTC) fielded 2.6 million fraud reports and $10 billion worth of losses. Nearly 50% of financial fraud is through investment scams, with $4.6 billion lost in 2023. This has increased from 21% in 2022.

Imposter fraud was the second most common source of losses, milking $2.7 billion from victims last year. Even the FTC itself is not immune to being impersonated by fraudsters. There are growing incidents of fraud involving people pretending to be FTC representatives. Individual victims lost a median of $7,000 to these impersonation scams, up from a median of $3,000 back in 2019.

Fraudsters use various methods to steal people’s money. One common method is to trick victims into making bank transfers or payments through electronic money transfer services. In 2023, a total of $1.8 billion was stolen this way. Cryptocurrencies have become a leading method of payment, resulting in $1.4 billion worth of losses last year.

How fraud is evolving

The means of contact scammers use to reach out to potential victims is changing with the times. The telephone is still the most common method for imposter scams, but it is losing some of its popularity. According to FTC figures, just a few years ago the telephone was the means of contact for 67% of reported impersonation fraud attempts. Last year, this was down to 32%.

Increasingly, telephone calls are being replaced by emails and text messages. Over the past few years, emails rose from 10% to 26% as the method of contact for impersonation scams. Text messages rose from 9% to 14%. It’s not just that the methods of contact are becoming more varied. The scams are using more complex plots. Rather than a single contact person trying to get your information or money, they may employ accomplices to move the process along. For example, a phony Amazon employee might refer you to a fake banker to discuss a payment or even to someone imitating a law enforcement official.

A growing frontier for fraud is video gaming. As gaming has become an increasingly interactive, social world, scams have become part of the interaction. The Consumer Financial Protection Bureau reports that the exchange of real-world money for virtual assets in video games gives criminals a means of turning in-game cons into actual value. Games often incorporate payment methods and access to financial products that unintentionally facilitate this process. Gaming platforms are designed to compile an extensive amount of personal information about users, which scammers can use to their advantage. Frustratingly, consumers often get little support from game providers when reporting fraud.

Frequent fraud types

The FTC reports the following as the top five most common forms of impersonation fraud:

1. Copycat security alerts. Getting you to believe you are at risk creates a sense of urgency. That’s just the type of atmosphere fraudsters use to induce you to click on a risky link or make bad decisions about providing sensitive information or transferring funds.
2. Phony subscription renewals. Scammers send out notices claiming to be from popular subscription services, like streaming channels or computer security companies. They ask people to send a payment to renew their subscriptions, and if you fall for it, they’ll have your money and your financial information.
3. Fake giveaways, discounts, or money to claim. Everybody likes the idea of winning something. However, when you provide the money or information necessary to claim your prize, you lose.
4. Bogus problems with the law. People can panic when they think they’re in trouble. That’s just the state criminals want you in to get you to make hasty decisions.
5. Made-up package delivery problems. With the popularity of online shopping, people often expect packages from FedEx, UPS, or the postal service. So, they might not be surprised to get an email saying there’s been an issue with a delivery. However, the solutions to these fake problems often involve clicking on a risky link or sending a payment to an impersonator.

Common sense is the best defense

Fraud is constantly evolving and becoming more technologically advanced. It helps to be aware of today’s common scams, but there’s no telling what form these may take in the future. In this uncertain environment, common sense is your best defense. Here are some general ways to use common sense to protect you against fraud:

• Verify identities independently. Don’t respond via links or phone numbers unknown people provide. Use contact information you know or can look up from a trustworthy source.
• Read email addresses carefully. Fake emails often have subtle differences in their addresses from the real thing. The organization’s name may have a different spelling, or there may be extra characters in the address.
• Don’t be rushed. A big part of a conman’s game is to make people act hastily. Whatever the situation, you are better off slowing the process down and making decisions calmly.
• Never transfer money to gift cards or cryptocurrency to make a payment. No legitimate organization would insist that you do this. It’s simply a way scammers get payments made in untraceable forms.

There’s an old warning about handling money in public places: ” Never flash your cash on the street.” These days, you have to think of your personal information as the equivalent of money and the internet and phones as the equivalent of public streets. When in doubt, keep it to yourself.

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2023 had more plot twists than a Knives Out movie. Some problems were resolved, some got worse, and others sprang up unexpectedly. Many of the past year’s developments affected consumer finances, creating an odd mix of good and bad news.

This kind of mixed environment calls for consumers to be aware and agile. They need to be mindful of how economic developments affect them and agile enough to adjust their financial habits accordingly. Ten key events affected consumer bank accounts, credit cards, mortgages, and overall financial health in 2023.

1. Fed adds more rate hikes then signals policy shift

The Federal Reserve raised rates four times by the end of July 2023. That continued a campaign of rate hikes that began in 2022. The past two years saw 11 rate hikes totaling 5.25%. This was a significant factor in driving borrowing rates higher. For example, the average rate on credit cards jumped by over 6% since the end of 2021 to 22.77%. After July, though, the Fed rate hikes stopped. The Fed closed the year by forecasting it would cut rates by about three-quarters of a point over the next year.

2. Inflation eases but doesn’t go away

Inflation peaked in mid-2022 at 8.9%. This pushed prices higher, prompted the Fed’s rate hikes, and drove loan rates, particularly mortgage rates. Things began to ease in 2023. By the end of November, the 12-month inflation rate was down to 3.1%. That’s a big improvement, but still well above the Fed’s long-range target of 2%.

3. Banks suffer biggest year of failures ever

A series of bank failures early in 2023 shook confidence in the US financial system. Through November, there had been only five bank failures in 2023. That’s a far cry from the peak year of 157 failures in the wake of the 2008 financial crisis. However, the dollar value of 2023 failures was over $548 billion, the highest total ever.

4. US economy proves resilient

With the economy under the strains of inflation and rising interest rates, many experts predicted a recession in 2023. The first half of the year saw the economy hang in there with two quarters of sluggish but still positive growth. Then came the surprise. GDP growth bounced back to an annual real growth rate of 4.9% in the third quarter, making it the best quarter since 2021.

5. Employment remains a bright spot

Perhaps the best thing consumers had going for them in 2023 was a strong job market. Through November, total US employment had risen for 35 consecutive months. At 3.7%, the unemployment rate remained near its 50-year low. With more job openings than job seekers, workers enjoyed an unusual amount of bargaining power.

6. Home prices rise despite slowing demand

For much of the year, rising mortgage rates severely dampened home-buying demand. Despite that, home prices continued to rise. The reason was a relative shortage of properties for sale. Those higher mortgage rates made existing homeowners reluctant to give up their low-rate mortgages by selling.

7. The Magnificent Seven dominate the stock market

After a poor 2022 for investors, the stock market appeared much improved in 2023. By December, the S&P 500 was up an impressive 21% for the year. However, upon closer examination, it was found that success was attributed mainly to just seven stocks. Overall, a group of seven leading tech stocks had gained 70% in 2023. Take out the performance of those seven stocks, and the remainder of the S&P 500 was up just 6%.

8. Credit card debt reaches $1 trillion

Overall consumer debt continued to rise to record levels in 2023. The total owed on credit cards reached the $1 trillion mark for the first time during the second quarter. With interest rates elevated, consumers face the highest total interest charges ever.

9. Consumer debt payment delinquency rates rise

As Americans took on more debt, they increasingly struggled to keep up with their payments. Delinquency rates rose for payments on auto loans, credit cards, mortgages and personal loans. The problem was most acute among people with poor credit scores. About 1 in 5 subprime credit card accounts were over 90 days overdue for payment.

10. Student loan payments resume

For the first time since the onset of the COVID-19 pandemic in 2020, payments on government student loans resumed in October 2023. Student loan advocates warned that it would cause a strain on the budgets and credit scores of millions of borrowers. More broadly, economists cautioned that it would drag on consumer spending.

Economics is often a mix of good and bad news, but in 2023, the US economy saw extreme opposites. Resilient economic growth, a strong stock market, and low unemployment contrasted with rising debt levels, late payments, and bank failures. For all the year’s good news, the bad means consumers cannot afford to become complacent.

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1. Surge in bond yields rattles markets
2. Social media is a “golden goose” for scammers
3. Americans reduce the wrong kind of debt
4. Tipping is a growing burden
5. Feds crack down on large banks charging for account information
6. Consumers expect spending to continue rising faster than income
7. Adjustable-rate mortgage applications increase
8. Inflation holds steady but remain above target

1. Surge in bond yields rattles markets

A recent surge in bond yields got additional fuel from last week’s surprisingly strong jobs report. Recent increases have seen 10-year Treasury yields rise as high as 4.9%, their highest level in over 15 years. Bond prices fall when yields rise, and higher yields also act as a drag on stock prices. The rising yields reflect pessimism over persistent inflation and reaction to the news that the Fed plans to keep rates elevated longer than initially thought. See article at Reuters.com.

2. Social media is a “golden goose” for scammers

The Federal Trade Commission (FTC) said social media was a golden goose for financial scams. The characterization came in connection with an FTC report on sources of financial fraud. The report found that social media cost victims more than any other source of financial fraud. Social media was the entry point for scams totaling $2.7 billion since the start of 2021. This was followed by $2.0 billion in losses from websites and apps, and $1.9 billion originating with a phone call. The most common scams involve fake products marketed via social media, followed by investment-related scams and then romance scams. Young adults are the most likely to be victimized by social media scams. See news release at FTC.gov.

3. Americans reduce the wrong kind of debt

Newly released figures from the Federal Reserve showed that seasonally adjusted total consumer debt dropped by $15.6 billion in August. That’s only the second monthly decline in consumer debt in the past three years and the largest such decline since the early months of the pandemic. However, the only bad sign is that while other forms of debt decreased at an annual rate of 9.8%, revolving debt rose at an annual rate of 13.9%. Revolving debt, which is mostly credit card debt, carries especially high interest rates. See data at FederalReserve.gov.

4. Tipping is a growing burden

A new survey found consumers feel they are being asked to tip service providers more than ever – and are getting tired of it. A USA Today poll found that 63% of respondents said too many places are now asking for tips. 48% said they are growing tired of these requests, with young adults especially likely to resent being asked to tip. While tipping for dining in a restaurant has long been customary, consumers are now confronted with tip requests for restaurant take-out and in-store purchases. 61% of poll respondents said these requests are getting too expensive. 57% said too many places are asking for tips, and 53% reported feeling pressured to tip. See article at USAToday.com.

5. Feds crack down on large banks charging for account information

The Consumer Financial Protection Bureau (CFPB) has announced it will take action against large banks that charge consumers for requesting basic information about their accounts. Examples include fees for copies of account agreements, information on recurring payment instructions, and account balances or interest rates. The CFPB issued this warning in the context of guidance on how it would enforce a section of 2010’s Consumer Financial Protection Act. This applies to banks and credit unions with over $10 billion in assets. The CFPB will seek monetary relief for violations beginning February 1, 2024. See announcement at ConsumerFinance.gov.

6. Consumers expect spending to continue rising faster than income

The New York Fed released new survey data showing consumers expect spending to rise faster than income over the next year. The average expectation is for spending to increase over the next twelve months by 5.3%. The average expectation for income growth over the same period is 3.5%. This would imply that more families will rely on credit to make ends meet. This comes as the share of households reporting that it has become more challenging to get credit over the past year increased. See news release at NewYorkFed.org.

7. Adjustable-rate mortgage applications increase

Mortgage applications increased last week, driven by a rise in adjustable-rate mortgages (ARMs). ARM activity increased by 15% last week and now represents 9.2% of all applications. This is the highest proportion of ARM applications since November of last year. ARMs offer home buyers a lower initial rate than fixed-rate mortgages and the possibility of future rate reductions if market rates decline substantially. However, ARMs also put home buyers at risk of future rate increases that could make their mortgage payments unaffordable. See mortgage application report at MBA.

8. Inflation holds steady but remain above target

The Consumer Price Index (CPI) increased by 0.4% in September. That’s an improvement from August’s 0.6% increase but still undesirably high. Over the past twelve months, the CPI is up by 3.7%, the same as the increase for the twelve months ending August 31. Core CPI (which excludes food and energy costs) is up by 4.1% over the past year. If continued for an entire year, September’s 0.4% increase in the CPI would translate to a 4.9% annual inflation rate. These figures are well above the Federal Reserve’s target of 2.0% inflation. See news release at BLS.gov.

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• Last week’s news roundup October 7, 2023

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1. Inflation takes important steps towards normalcy
2. Producer prices continue to level off
3. Banks scramble to recategorize uninsured deposits
4. New analysis highlights severity of US government debt
5. Consumer borrowing slows but gets more expensive
6. Mortgage rates rise again
7. Consumer expectations mixed
8. Bank of America charged $250 million for wrongdoing

1. Inflation takes important steps towards normalcy

The Bureau of Labor Statistics reported that the Consumer Price Index rose 0.2% in June. This is a moderate monthly increase, bringing the year-over-year inflation rate down to 3.0%. That’s the lowest 12-month inflation rate since March 2021. While not quite down to the Federal Reserve’s stated target of 2.0%, it is a significant improvement from the 4.0% one-year inflation rate through the end of May, not to mention the peak inflation rate of 9.1% a year ago. Also, 3.0% is very much in line with historical inflation. The core inflation rate, which excludes food and energy, remains more elevated at 4.8%. However, core inflation for June was no different from overall inflation at 0.2%. See details at BLS.gov.

2. Producer prices continue to level off

More confirmation of the slowing inflation trend was found in the release of Producer Price Index (PPI) numbers for June 2023. The PPI essentially measures wholesale costs, contrasting with the retail costs measured by the Consumer Price Index. The PPI rose by just 0.1% in June 2023 and is down over the first six months of 2023. Costs for goods were unchanged during June, while costs for services were up by 0.2%. Overall, the PPI is up just 0.1% over the past year. One year ago, PPI increased by 11.2% over the previous twelve months. See details at BLS.gov.

3. Banks scramble to recategorize uninsured deposits

Faced with a special FDIC assessment on uninsured deposits, several banks are changing how they account for such deposits on their regulatory reports. The special assessment is in response to uninsured deposits’ leading role in bank failures earlier this year. Uninsured deposits are typically those over $250,000 from any one customer. Usually, between 15 and 20 banks restate uninsured deposits in any calendar quarter. However, 55 banks restated their 4th quarter 2022 reports, and 22 restated their 1st quarter 2023 reports. The vast majority of the revisions reduced the number of uninsured deposits banks report. It is unknown whether the FDIC will accept the change in how these banks are now accounting for uninsured deposits. See article at SPGlobal.com.

4. New analysis highlights severity of US government debt

An analysis by the Cato Institute breaks down some jarring facts about the amount of money the federal government owes. The report says that if US government debt were split evenly among US households, each would owe $194,000. The relationship between annual spending and revenues for the government is akin to a person spending $100,000 a year on a $78,000 income. Of every $10 the government spends, $7 is spent automatically, with no action by elected officials required. See details at Cato.org.

5. Consumer borrowing slows but gets more expensive

Federal Reserve figures for May show that consumer borrowing experienced its slowest month of growth since November 2020. Consumers increased debt by $7.2 billion during the month, down from $20.3 billion in April. Loan debt decreased at an annual rate of 0.4% during the month. However, this was more than offset by an 8.2% yearly rate of increase in revolving debt. Revolving debt is made up mostly of credit card debt.

6. Mortgage rates rise again

30-year mortgage rates rose for the third consecutive week. This string of increases has 30-year rates nearing the 7% mark, with the average reaching 6.96% last week. The rising trend has been accelerating, with the previous week’s 15 basis point increase the largest of the three consecutive weekly increases. 30-year rates peaked last November at 7.08%. 15-year rates have also risen for three weeks in a row, reaching 6.30%. See report at FreddieMac.com.

7. Consumer expectations mixed

A monthly survey of consumer expectations saw consumers anticipating less inflation in the year ahead and higher wage increases. However, consumers still expect inflation to exceed wage growth. The Federal Reserve Bank of New York found that consumers expected prices to rise 3.8% over the next twelve months as of June. This was an improvement from the 4.1% outlook in the May survey. The expected wage growth over the year ahead was 3.0%, an increase of 0.2% from the previous survey. See survey results at NewYorkFed.org.

8. Bank of America charged $250 million for wrongdoing

The Consumer Financial Protection Bureau levied $250 million against the Bank of America, one of the largest banks in the world. The penalty includes $100 million in restitution to customers and $150 million in fines. Bank of America is accused of a variety of illegal practices. These include charging multiple fees for the same transaction, withholding cash and points on rewards credit cards, and misusing consumer information to open unauthorized accounts. See news release at ConsumerFinance.gov.

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• Last week’s news roundup July 8, 2023
• Next week’s news roundup July 22, 2023

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1. Job growth slows
2. Supreme Court disallows student loan forgiveness
3. Mastercard launches subscription management service
4. Oil prices continue to slump
5. Key inflation indicator muted in May
6. Stress test shows bank resiliency
7. Manufacturing weakness continues
8. Yield curve signals likely recession
9. Mortgage rates hit 2023 high

1. Job growth slows

The US economy added 209,000 jobs in June. That marked a slower pace of employment growth than May’s 306,000. Along with weaker job growth, there were other signs of a weakening job market. Initial job growth estimates for April and May were revised downward by 110,000. Also, the number of people working part-time rather than full-time for economic reasons increased by 452,000. That marks a 12% increase in just one month of people who would prefer to work full-time but had to settle for part-time employment. See report at BLS.gov.

2. Supreme Court disallows student loan forgiveness

Following a Supreme Court ruling that canceled their student loan forgiveness plan, the Biden Administration seeks an alternative. The President is now proposing a plan that involves a grace period of 12 months once loan payments resume in October. It also would drastically modify current income-driven repayment programs. The new proposal would eliminate payments for anyone making less than 225% of the federal poverty level. It would limit payments to 5% of discretionary income. Finally, for loans of $12,000 or less, it would eliminate remaining loan balances after ten years. This proposal seems likely to lead to a new round of court challenges. See article at Yahoo.com.

3. Mastercard launches subscription management service

Amid criticisms that streaming and other subscription services have become overly expensive and hard to handle, Mastercard has teamed with Subaio to offer a new subscription management service. This service allows consumers to manage their subscription services through a single source rather than dealing with each provider separately. Subscription management has become a hot new area in fintech. Mastercard’s research found that the average consumer has 12 different media and entertainment subscriptions, with millennials juggling an average of 17 such subscriptions. See release at Mastercard.com.

4. Oil prices continue to slump

Brent oil prices, which act as a global benchmark for oil, declined for the fourth consecutive quarter in the second quarter of 2023. Prices have remained weak despite efforts by oil producers to limit supply. Falling energy prices have been a moderating influence on inflation over the past year. See article at Yahoo.com.

5. Key inflation indicator muted in May

The Personal Consumption Expenditure (PCE) price index rose by just 0.1% in May 2023. The PCE price index is the primary inflation indicator used by the Federal Reserve. The 0.1% increase represents slowing inflation after the PCE price index rose by 0.4% in April. May’s increase brings the inflation rate for the past year to 3.8%. However, core inflation remains more elevated at 4.6%. See details at BEA.gov.

6. Stress test shows bank resiliency

Key US banks passed a Federal Reserve stress test with flying colors. Twenty-three major banks, including industry leaders JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley, participated in the test. The test measured whether the banks’ financials could continue to meet the Fed’s reserve requirements in the event of a severe global recession. The test measured how the banks would react when unemployment reached 10% and the stock market lost 45%. See details at Yahoo.com.

7. Manufacturing weakness continues

A widely-followed measure of US manufacturing activity fell for an eighth straight month in June. The Institute for Supply Management (ISM) manufacturing index fell to 46, down from 46.9 in May. Any reading below 50 indicates declining manufacturing activity. The index has been below 50 for the longest time since the 2008-2009 recession. The current reading is the lowest since May 2020. See article at Yahoo.com.

8. Yield curve signals likely recession

The spread between 2-year and 10-year Treasuries is now the most inverted in 42 years. An inverted yield curve is when short-term yields exceed long-term yields. The spread recently reached 109.5 basis points. High short-term yields are partly due to the Fed’s string of rate increases. While lower long-term yields could be taken as a sign that the Fed’s inflation-fighting efforts will succeed, they also suggest that a recession might be necessary to smother inflation thoroughly. See article at Reuters.com.

9. Mortgage rates hit 2023 high

30-year mortgage rates rose for a second week to reach 6.81%. That marks their highest in 2023, though it’s still short of last year’s peak of 7.08%. 15-year rates also reached their highest point in 2023, reaching 6.24%. See details at FreddieMac.com.

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• Last week’s news roundup June 24, 2023
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FDIC insurance, also known as federal deposit insurance plays an important role in stabilizing the banking system in the United States. The most recent reminder of this came in early 2023 when bank failures remained limited to a few institutions rather than triggering a widespread banking crisis.

However, there are limits to this insurance coverage. Where you put your money and how much money you have in any one place can make all the difference in whether your funds are protected. The Consumer Financial Protection Bureau (CFPB) recently warned consumers that money they deposit in payment apps in many cases is not insured. If those companies suddenly fail, consumers could lose the money they put into those apps. The Federal Deposit Insurance Corporation (FDIC) warned three companies against falsely representing their products as being covered by deposit insurance. Both cases involved popular alternatives to traditional bank products.

A few high-profile bank failures have led people to seek other alternatives. In many cases though, the alternatives are more risky. By looking beyond traditional bank products, some customers have opted for deposit vehicles that are not covered by any sort of insurance. While bank insurance has limits, it is better than no insurance at all. That and banks are highly regulated, which generally helps keep your money safer.

Which banks are covered by FDIC insurance?

The FDIC administers federal deposit insurance for banks. Only members of the FDIC are allowed to use the FDIC symbol. You can look up whether a bank is an FDIC member by using the “Bank Find” feature on the FDIC website. There are over 4,600 FDIC-insured institutions.

A similar form of federal deposit insurance is provided to participating credit unions by National Credit Union Administration (NCUA). FDIC and NCUA insurance are the only federal deposit insurance programs.

Federal deposit insurance remains the best option for keeping money safe. The recent bank failures have reinforced the value of deposit insurance.

What products are covered by federal deposit insurance?

Federal deposit insurance extends only to FDIC member banks and NCUA member credit unions. Products covered include traditional deposit products such as savings accounts, money market accounts and CDs.

Brokerage accounts and insurance products are not covered by FDIC insurance. When you open an account with an FDIC or NCUA member institution, it’s important to confirm that the product you choose is covered. Anything other than a traditional deposit product is not covered.

Money market accounts vs. funds

Though the names are very similar, there are differences between money market accounts (covered by FDIC insurance) and money market funds (not covered).

A money market account is very similar to a savings account. The bank may invest deposits in “money market instruments.” These are a variety of very short-term income-producing instruments. Typically, these investments can help the bank offer a somewhat better yield. While the bank may be investing in money market instruments, the account remains a general obligation of the bank. Its value is not directly affected by those instruments, and that value is ultimately protected by deposit insurance.

In contrast, a money market fund is a common investment vehicle offered by brokerage firms and mutual fund companies. The investments are similar to those used for a money market account–short-term, income-producing securities. However, a money market fund is a form of mutual fund. That means it holds those securities directly and the value of the fund is determined solely by the value of those securities. Money market funds are generally safe, but there have been instances where some have lost value. The point is that if and when that happens, they are not covered by any form of deposit insurance.

Non-traditional bank accounts

Non-bank financial institutions and fintech companies offer non-traditional bank accounts. They include digital wallets, prepaid accounts, cryptocurrency wallets, and peer-to-peer lending accounts. These accounts provide banking-like services but may lack the same regulatory oversight and deposit insurance as traditional banks. They leverage technology and offer innovative financial solutions through digital platforms. Users can store funds, conduct transactions, and participate in alternative lending or cryptocurrency activities. It’s important to review the terms and protections offered by these accounts, as they may differ from traditional banks.

Non-traditional bank accounts may or may not be FDIC insured. FDIC insurance typically applies to traditional banks. Non-traditional bank accounts may have different protections or insurance arrangements. It is important to review the account provider’s terms and disclosures to understand the coverage. These accounts offer banking-like services but operate outside the traditional banking system. Examples include digital wallets, prepaid accounts, cryptocurrency wallets, and peer-to-peer lending accounts. Customers should be aware of the potential differences in regulatory oversight and deposit insurance when considering non-traditional bank accounts.

Check out the Sesame Cash prepaid debit card.

Limits of FDIC insurance

Even if you have the right type of account with an FDIC or NCUA-insured institution, your deposit coverage is limited to $250,000 for an individual account and $500,000 for a joint account.

These limits apply in total to all your accounts at a given bank. So, if you split your money up among several individual accounts at one bank, it’s only insured for a total of $250,000 across all those accounts. The only way you can get more coverage for $250,000 is to spread it among different banks.

That may seem straightforward enough, but where the confusion comes in is that a bank may be operating under more than one brand name. While those brand names may seem like separate institutions, if they have the same parent bank the $250,000 deposit limit applies across all deposits at that bank. So, if you have deposits at different banks, it is important to make sure those banks aren’t affiliated.

Alternatives to going over the limit

There are alternatives if you have over $250,000 in an individual account or $500,000 in a joint account. One is that you can simply spread that around to different unaffiliated banks and credit unions. As long as the total at each institution is below the limit, you’re covered. Another possibility is to invest directly in short-term Treasury securities. These are federally-guaranteed securities. While the value of those securities can fluctuate, if you hold them till maturity you know what you’ll get.

If you found The importance of FDIC insurance useful, you may be interested in,

• 9 Ways Digital Banks Get to Know Their Customers
• Bank failures raise depositor concerns
• Should Consumers Trust Banks?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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