The Federal Reserve may not cut interest rates just yet. Here’s what that means for your money

Economists expect the Federal Reserve to leave interest rates unchanged at the end of its two-day meeting this week, even though many experts anticipate the central bank is preparing to start cutting rates in the months ahead.

In prepared remarks earlier this month, Federal Reserve Chair Jerome Powell said policymakers don’t want to ease up too quickly.

Powell noted that lowering rates rapidly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.

But in the meantime, consumers won’t see much relief from sky-high borrowing costs.

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In 2022 and the first half of 2023, the Fed raised rates 11 times, causing consumer borrowing rates to skyrocket while inflation remained elevated, and putting households under pressure.

With the combination of sustained inflation and higher interest rates, “many consumers are experiencing higher levels of economic stress compared to one year ago,” said Silvio Tavares, CEO of credit scoring company VantageScore.

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

Even once the central bank does cut rates — which some now expect could happen in June — the pace that they trim is going to be much slower than the pace at which they hiked, according to Greg McBride, chief financial analyst at Bankrate.

“Interest rates took the elevator going up; they are going to take the stairs coming down,” he said.

Here’s a breakdown of where consumer rates stand now and where they may be headed:

Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

With most people feeling strained by higher prices, balances are higher and more cardholders are carrying debt from month to month compared with last year.

Annual percentage rates will start to come down when the Fed cuts rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, McBride said.

“If the Fed cuts rates twice by a quarter point, your credit card rate will fall by half a percent,” he said.

Mortgage rates

Fifteen- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy. But anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

Rates are already significantly lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is around 7%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

“Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”

Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate, and those rates remain high.

“The reality of it is, a lot of borrowers are paying double-digit interest rates on those right now,” McBride said. “That is not a low cost of borrowing and that’s not going to change.”

Auto loans

Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.

Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”

Federal student loans

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments

Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

Savings rates

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Brazil’s Nubank Is Leaving U.S. Digital Banks In The Dust

David Vélez has built an $8 billion fortune turning nearly half of Brazil’s adults into users of his credit card, digital banking and loan products. Why can’t American fintechs do the same?

By Jeff Kauflin, Forbes Staff


David Vélez has delivered a string of surprises since leaving his nascent venture capital career in 2013 to start a Brazilian digital bank. The most recent came on May 15, when his company Nubank blew away analysts’ expectations by posting $142 million in net profits for the first quarter and $1.6 billion in revenue, an 87% increase from the year before. The results were all the more striking given how many other fintechs are mired in slow growth and slim or no profits. Nubank’s stock, which trades on the New York Stock Exchange, has surged 30% since that report, pushing its market value to $37 billion and Vélez’s 21% stake to nearly $8 billion.

“To be frank, it should not really come as a surprise,’’ the 41-year-old CEO told analysts, adding that it’s “consistent” with what he’s been saying for years: once his low-cost, digital-only, data-dependent model reached maturity in a market, it would produce a high return on equity. Nubank now claims an astonishing 46% of Brazil’s adults as customers. In just the past two years, it has more than doubled its customer base to 80 million people in Brazil, Mexico and Colombia–all served by just 8,000 employees. By contrast, Chime, the most successful digital bank in the U.S, likely has fewer than 20 million registered users (it doesn’t disclose the number), laid off 12% of its staff last year amid slowing growth and is probably worth a lot less now than the $25 billion it was valued at in a 2021 fundraise, during the pandemic-fueled fintech boom.


Vélez, in his analytical, measured way, frames it as entirely predictable that Nubank would outpace its Yankee counterparts. “We thought this would happen faster in emerging markets than in developed economies like the U.S. or Europe, because the consumer pain you’re addressing in emerging markets is much, much bigger,” the Colombian-born, Stanford-educated MBA tells Forbes.

A decade ago, when Nubank first launched, five Brazilian banks controlled 80% of that market, earning fat profits by lending at 200% to 400% annual interest rates, charging monthly fees for everything from fraud protection to text-message alerts and delivering lousy customer service. The U.S. market was much more competitive, with 5,800 traditional banks, more digital bank startups in the works and a generally higher standard of service—despite consumers’ gripes about overdraft and other fees.

Vélez not only chose his target market wisely, but also smartly tailored his strategy to meet both the opportunities and pain points in Brazil. Most U.S. digital banks have started out with a checking account and debit card. But Nubank launched with a no-fee credit card, because it didn’t need a banking license to issue a card and because almost all the Brazilian card issuers charged fees. Still, it was an arguably risky move, since credit card losses “can really kill your company,” says Nubank cofounder and chief growth officer Cristina Junqueira. She’s a 40-year-old Brazilian engineer with an MBA from Northwestern’s Kellogg School who was recruited by Vélez specifically for her credit card expertise—at a young age, she ran the largest credit card division of Itaú, Brazil’s largest bank. Now, she’s got a 2.7% stake worth $1 billion in Nubank.

One advantage of launching with credit cards is that, unlike its U.S. counterparts, Nubank wasn’t burdened with high upfront marketing costs. Instead, it started with a classic “velvet rope” strategy, inviting early adopters (and then their friends) to apply for its distinctive purple credit cards. “Telling customers, ‘Come and give me your money. Deposit your money here,’” is a more difficult sale than offering them credit, Junqueira observes.

Such strategic and marketing insights have helped make Nubank the second most valuable financial services company in Latin America, behind only 78-year-old Itaú. True, with its stock trading around $8, Nubank is still down 12% from its initial offering price of $9 in December 2021. But that’s impressive compared with a 54% drop for the fintech category in the same time period.

The big question now is whether Nubank can repeat its Brazilian success in the Mexican and Colombian markets while continuing to grow and become even more profitable in Brazil.


Within three years of launching its credit card in 2014, Nubank had nearly two million customers. In addition to the absence of annual fees, its mobile app, which lets customers do everything from applying for a card and requesting credit-limit increases to reporting fraud, has helped Nubank build a broad, loyal customer base. The company says between 80% and 90% of its customers have come through word of mouth or unpaid referrals, and it has 35 million active credit cardholders today. Last year, about 45% of Nubank’s $4.8 billion in revenue came from interest income on consumer loans (both credit card and personal loans), according to Mario Pierry, a research analyst at Bank of America who covers Latin American financial services companies. The rest was a mix of the interest it earns on customers’ cash balances, the card-swipe interchange fees paid by merchants, fees it receives through its life insurance and investing services, late fees it charges to consumers and other fees.

By contrast, U.S. neobanks have largely avoided credit–most began with debit cards by partnering with traditional banks to offer checking and savings accounts. They chose that path for many reasons. Lending isn’t just risky–it’s also expensive, because neobanks need to rely on debt funding from Wall Street and other financial firms and pay hefty prices for it, especially when interest rates are high. Lending startups also don’t generally command big valuations relative to the revenue they bring in. They’re capital-intensive and cyclical. The list of highly successful fintech companies that have started with credit is small, Vélez notes. He cites Tinkoff in Russia, Kaspi in Kazakhstan and Capital One, which was founded in Virginia in 1994 by Richard Fairbank and Nigel Morris, an early Nubank investor and the managing partner of venture capital firm QED, which focuses on fintechs.

“Venture capital and credit are a marriage made in hell,” Morris quips. “Venture capital is by its very nature impatient. It wants to see results and wants to see accelerated growth … whereas lending requires you to be incredibly meticulous, logical, linear and exhaustive.” Learning to lend profitably requires giving money to people who won’t pay you back, then figuring out who they are so you don’t give them money again. “Training that mathematical model doesn’t take weeks. It doesn’t take months. It takes quarters or years,” Morris says from experience.

While many fintech experts say U.S. neobanks aren’t set up to become good lending businesses because their customers are low- and middle-income, Vélez counters that Nubank has many low-income customers. Lower income doesn’t mean bigger lending losses, just as higher income doesn’t lead to smaller losses, Vélez says, as long as you’re extending the right amount of credit. Nubank starts some customers at a limit as low as $10, and for higher-risk customers, it only offers them a secured card, meaning they must make a cash deposit before using it. Then it ramps up a card’s limits–sometimes after just 15 or 30 days–as it collects more data on both a particular user and users in general. This patient approach means you must be willing to lose money for a significant period of time among low-income customers, Vélez notes.

Another difference in Nubank’s approach also took a lot of patience (and four years of effort): it obtained its own banking payments license, rather than partnering with incumbents to offer bank-like services, as most fintechs in developed economies have. That license boosts Nubank’s profitability since it can fund its own loans, rather than relying on outside investors. It also gives the operation more control over the customer experience, Junqueira says. For example, Nubank lets customers dispute charges from within the app, which wouldn’t be possible otherwise.

In the U.S., fintech startup Varo tried to pursue this strategy, spending three years and nearly $100 million to get its own bank charter. But it hasn’t worked out, likely because steep competition and rising costs to acquire customers have hampered growth. As of the end of March 2023, Varo reported 5.2 million total accounts, down from 5.3 million in December 2022.


While Nubank’s growth so far has been stunning, keeping up that pace will be tough. It launched its credit card in Mexico and Colombia in 2020, yet in the first quarter of 2023, $1.5 billion of its $1.6 billion in revenue still came from Brazil. So far, Nubank counts just 3% of Mexican adults and 2% of Colombians as customers, compared with its 46% penetration in Brazil—though Vélez told analysts he expects reaching critical mass in those countries will be faster than it was in Brazil. “So far, the experience we are having in Mexico and in Colombia is more positive than what we saw in Brazil in the first few years,’’ he said. “Mexico and Colombia are beating Brazil at effectively all metrics, from customer growth to early monetization, and plans for these countries are ahead of expectations.”

One challenge for Vélez and his team as they expand: the incumbent players, having taken note of Nubank’s success, are reacting faster than Brazil’s banks did. In Mexico, Banorte, the second largest bank by assets, has a three-pronged strategy to digital banking: it has its own mobile app, a home-grown, independent digital bank called Bineo and a joint venture with ecommerce startup Rappi, says Bank of America’s Pierry. Startups are growing there, too–Stori, a credit card startup led by Bin Chen, a former manager at Capital One and executive at MasterCard, recently reached two million customers, it says. Nubank reached 3.2 million customers in Mexico at the end of March 2023.

Another tall order for Nubank: profitably expanding its variety of offerings. “You have to diversify away from being a one-product player,’’ says Pierry. He notes its newer financial products like life insurance and its investing platform have grown more slowly. Nubank “is still in the early days of its product development lifecycle, having begun the expansion beyond core products only in 2020,” a Nubank spokesperson says. “The pace at which we are developing and launching new products is accelerating over time.”

Nubank has been offering personal loans for the past several years, but it had to pull back on them when delinquencies and interest rates rose sharply in mid-2022, says Pierry, who notes that Nubank’s average monthly revenue per customer is about $8, while it’s roughly $30 for Brazil’s incumbent banks. Of course, its expenses per customer are a lot lower, too–just one twentieth those incurred by brick-and-mortar banks, according to Vélez.

Another pitfall is one that can come with such outsized success—regardless of industry. “Nubank needs to make sure that its culture continues to promote entrepreneurship and scrappiness,” says venture capitalist Morris. “They need to make sure they don’t start to believe their own publicity and get intoxicated by their own success.”

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The risky options for Main Street cash, credit, when banks say no to lending

Under current banking and credit conditions, many small businesses are likely being bombarded with pitches for online loans and cash advances. Some of these offers, however, could lead the business down — or further down — the rabbit hole of debt.

Certainly, online lending platforms can make it easier for small businesses to obtain financing, and they serve a key need in a market that has long struggled to get the attention of traditional banks. The recent CNBC|Momentive Small Business Survey found owners saying they had lost confidence in banks as a result of the regional banking crisis, and even more to the point, almost half said it isn’t easy for them to access capital to operate. The debt ceiling fight has introduced another element of economic uncertainty that has small business owners on edge.

Compared with a bank loan, online loan providers typically require fewer hoops for borrowers to go through, more relaxed underwriting standards and a quicker turnaround. The challenge is finding a reputable provider, at a reasonable cost, and with terms that won’t undermine the business’s long-term prospects.

“Some people say you shouldn’t have a credit card, but it’s not the credit card. It’s how you use the credit card. The same is true with online financing,” said Nicole Davis, founder and principal of Butler-Davis Tax & Accounting LLC. 

Here are five things small businesses need to know when considering an online financing offer:

Online loans 

An online loan can be used to fund various business expenses. It’s generally easier to apply and qualify for than a traditional bank loan, and options may exist even if you have less-than-stellar credit. The loan amount can vary, with many ranging between $100,000 and $500,000. Some online loans are 12 months or less, but longer-term options may also be available. These loans generally carry higher interest rates than might be available from a traditional bank or the U.S. Small Business Administration, with annual percentage rates often in the range of 6% to 99%, according to a NerdWallet analysis. Terms are based on the owner’s credit profile, how long the business has been operating, its financials and the amount borrowed, said Travis Miskowitz, a partner in the CFO advisory services group at the accounting and advisory firm Wiss. 

Pay attention to fees that could make the loan more costly, Miskowitz said. These could include an application fee, a good-standing fee to see whether the business is in compliance with local laws, and a credit check fee.

Many lenders may also require a personal guarantee, which can be debilitating in a default and can also impact the owner’s ability to qualify for a personal loan, such as a mortgage. A secured loan could be more advantageous because the rate will likely be lower and the lender might not require a personal guarantee, Miskowitz said.

Merchant cash advance

With a merchant cash advance, companies borrow money against their future sales and pay it back as these sales are generated, often over three to 18 months. A merchant cash advance can be particularly attractive when a small business needs cash fast, generally within a few days, said Alan Wink, managing director of Eisner Advisory Group. This type of funding can also be more accessible to owners with bad credit.

But there are caveats. Terms vary widely by provider and the cost of capital typically isn’t expressed as an APR, making it harder for businesses to understand. Funders charge their fees as a factor rate, generally 1.1 to 1.5, according to NerdWallet.

The advance amount multiplied by the factor rate is what needs to be paid back. But knowing that total doesn’t necessarily help the owner understand how expensive the cash advance is since owners are generally more familiar with APR. Doing a conversion can be useful for comparison purposes. 

A cash advance can be quite costly — in the triple digits when expressed as an APR, according to NerdWallet. 

Fixed vs. variable rate debt

Beyond the type of financing, businesses need to consider whether the rate is fixed or variable, the duration, the business’s ability to pay it back on time, costs, including underwriting and late fees, if any, whether personal or business guarantees are required, and what happens if a payment is missed.

“This is not a scroll-down-and-accept-the-terms-situation,” said Will Luckert, president of small business solutions at Corpay, a corporate payments company. “There can be a number of tricky things buried in the terms and conditions,” Luckert said.

Especially with merchant cash advance, owners get into trouble because they don’t understand what they are signing up for. Start by crunching the numbers on your own. To illustrate, Luckert offers the example of a $10,000 advance where $12,000 needs to be repaid in 30 days. To determine the APR, take $12,000 and divide by $10,000. Then subtract one and multiply by 100. Take that answer, 20 percent, and multiple by 12 to get an APR of 240%. Owners can also use this NerdWallet calculator to help determine what their effective APR would be.

Also consider the repayment frequency — daily, weekly or monthly — especially if you are already in a cash crunch, Davis said. She doesn’t recommend daily repayments, for example, saying, “It’s a quick fix to a problem that can become a ruinous cycle.”

In an attempt to protect small businesses, California now requires certain cost disclosures to merchants. New York is also implementing disclosure rules, even as the California regulations are being challenged in court. In the meantime, it’s still a buyer-beware market. “People need to do the math themselves, especially on a cash advance, and see if there’s anything you can do that would be less expensive,” said Paul A. Rianda, an attorney in Irvine, Calif., who specializes in serving the bankcard industry.

How to find a reputable business loan provider 

To help avoid a bad actor, it’s a good idea to vet potential providers through your CPA or attorney since they likely deal with online providers frequently, Wink said. 

Also look at online customer reviews and browse for regulatory actions against the funding company, said Waseem Daher, chief executive and cofounder of Pilot, which specializes in bookkeeping, tax, and CFO services for high-growth technology startups.

Owners can also check in with the Small Business Finance Association, an industry organization whose 25 members are mostly online lenders and funders. Members of the SBFA have to agree to follow certain best practices related to pricing and term transparency, access to customer service and fair collection, among other things. A small business can contact the SBFA to see if a particular financing company is a member or to ask specific questions about the industry, said Steve Denis, the organization’s executive director.

Additionally, the SBFA has a relatively new certification for industry professionals to help ensure they are properly trained. A database of certified professionals is planned for the future, but in the meantime, owners can contact the SBFA for this information, Denis said. 

Other alternative lending options

Depending on the circumstances, another form of funding might be a better option. This could include family and friends, investor equity or credit cards. Businesses should also think about what can potentially be done to prop up the business without relying on third-parties, Daher said.

Can you get your customers to prepay in exchange for a discount, for example? Can you get longer payment terms from your vendors? Can you do anything else to reduce your costs?

These efforts won’t cost you anything and can help avoid the need to rely on a third-party for funding, Daher said.

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The Federal Reserve is about to hike interest rates one last time this year. Here’s how it may affect you

The Federal Reserve is expected on Wednesday to raise interest rates for the seventh time this year to combat stubborn inflation. 

The U.S. central bank will likely approve a 0.5 percentage point hike, a more typical pace compared with the super-size 75 basis point moves at each of the last four meetings.

This would push benchmark borrowing rates to a target range of 4.25% to 4.5%. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates consumers see every day.

Why a smaller rate hike may be ‘pretty good news’

By raising rates, the Fed makes it costlier to take out a loan, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases. 

“For most people this is pretty good news because prices are starting to stabilize,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School. “That’s going to bring a lot of reassurance to households.”

However, “there are some households that will be hurt by this,” she added — particularly those with variable rate debt.

For example, most credit cards come with a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.

But it doesn’t stop there.

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What the Fed’s rate hike means for you

Another increase in the prime rate will send financing costs even higher for many other forms of consumer debt. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

“Credit card rates are at a record high and still increasing,” said Greg McBride, chief financial analyst at Bankrate.com. “Auto loan rates are at an 11-year high, home equity lines of credit are at a 15-year high, and online savings account and CD [certificate of deposit] yields haven’t been this high since 2008.”

Here’s a breakdown of how increases in the benchmark interest rate have impacted everything from mortgages and credit cards to car loans, student debt and savings:

1. Mortgages

2. Credit cards

Credit card annual percentage rates are now more than 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

“Even those with the best credit card can expect to be offered APRs of 18% and higher,” said Matt Schulz, LendingTree’s chief credit analyst.

But “rates aren’t just going up on new cards,” he added. “The rate you’re paying on your current credit card is likely going up, too.”

Further, households are increasingly leaning on credit cards to afford basic necessities since incomes have not kept pace with inflation, making it even harder for those carrying a balance from month to month.

If the Fed announces a 50 basis point hike as expected, the cost of existing credit card debt will increase by an additional $3.2 billion in the next year alone, according to a new analysis by WalletHub.

3. Auto loans

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.05%, up from 3.86% at the beginning of the year, although consumers with higher credit scores may be able to secure better loan terms.

Paying an annual percentage rate of 6.05% instead of 3.86% could cost consumers roughly $5,731 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

Still, it’s not the interest rate but the sticker price of the vehicle that’s primarily causing an affordability crunch, McBride said.

4. Student loans

The interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. It won’t budge until next summer: Congress sets the rate for federal student loans each May for the upcoming academic year based on the 10-year Treasury rate. That new rate goes into effect in July.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers are also paying more in interest. How much more, however, will vary with the benchmark.

Currently, average private student loan fixed rates can range from 2.99% to 14.96%, and 2.99% to 14.86% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

5. Savings accounts

On the upside, the interest rates on some savings accounts are also higher after consecutive rate hikes.

While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4%, much higher than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.

“Interest rates can vary substantially, especially in today’s interest rate environment in which the Fed has raised its benchmark rate to its highest level in more than a decade,” said Ken Tumin, founder of DepositAccounts.com.

“Banks make money off of customers who don’t monitor their interest rates,” Tumin said.

With balances of $1,000 to $25,000, the difference between the lowest and highest annual percentage yield can result in an additional $51 to $965 in a year and $646 to $11,685 in 10 years, according to an analysis by DepositAccounts.

Still, any money earning less than the rate of inflation loses purchasing power over time. 

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