The Good News About Rising Interest Rates

RISING INTEREST RATES MAY ACTUALLY BE GOOD NEWS FOR CONSUMERS WHO ARE IN A POSITION TO MAKE THE MOST OF THEM. INTEREST RATES HAVE RISEN ON A CONSECUTIVE BASIS OVER THE PAST YEAR AS THE FEDERAL RESERVE RESPONDS TO A NUMBER OF FACTORS CURRENTLY AFFECTING THE U.S. ECONOMY.

Although a rise in interest rates often signifies a booming economy, it also means
consumers will pay more to borrow money. A more expensive loan, mortgage or credit card payment can mean an increase in the cost of living for many Americans.

However, consumers should also be aware that these rate increases can also signify an opportunity to earn more from their money. When interest rates go up, the rate of return on various deposit products such as money markets, CDs and savings accounts may also rise. In other words, although investors may be paying more in terms of borrowing, there could also be an increase in interest earned on their cash.

As interest rates rise, look to higher-yield deposit products that offer flexibility, such as:

Money Market Accounts: Federally-insured accounts that typically offer a high interest rate on savings and offer cash management features such as ATM and check writing.

Certificate of Deposits (CDs): Federally-insured accounts that offer high rates of return on money invested for a specific period of time, from three months to six years.

GROWTH IN ONLINE BANKING
The Internet has made it easier to manage your finances. For example, many financial services firms enable customers to view all their accounts online and perform a number of transactions, such as check balances, transfer money between accounts, pay bills or even stop payment on a check. Many online financial institutions, such as ETrade,
provide an online tool for investors who want to know how to maximize the interest they
earn on uninvested cash.

As the Web becomes a staple of American life, the phenomenon of 24-hour banking has become mainstream and more and more consumers are turning to the information superhighway to manage all of their household finances. They’re realizing that they can save time, and even money, if they ditch the checkbook and stamps and start banking
and paying bills online. Because online banking and bill payment are available 24/7, consumers have the ability to simply visit their bank’s Web site at their convenience, creating their own banking hours to work around their busy schedules.

A new study commissioned by MasterCard RPPS and conducted by Ipsos Insight, found that three-quarters of Americans cite managing finances as the top reason they go online. The ability to pay all monthly bills in one place, while managing household finances, offers convenience, time-savings, and peace of mind to consumers who don’t want to be bothered each month with check writing, account balancing, late payments
and trips to the post office. In fact, the study revealed that in the past six months, over one-third of Americans (38 percent) had made an account balance inquiry at their bank’s Web site, and another third (37 percent) had used online bill payment.

Consumers benefit from an already established relationship with their financial institution. Over half of Americans (58 percent) believe their needs are well provided for by their bank in the services they offer. The majority (92 percent) feel that their bank provides ample services. Those surveyed who pay their monthly bills predominantly
online are less likely to consider paying bills a hassle.

Moreover, as online banking and bill payment have gained traction in the mainstream, banks have continued to bolster their online offerings, reassuring customers that banking and paying bills online is the fastest, most convenient, and most secure way to manage household finances.

The convenience of paying bills online through a bank’s Web site is a driving factor for a majority of consumers who ultimately make this their means of paying most, if not all, of their monthly bills. According to TowerGroup, 42 percent of households are expected to participate in online banking this year, while online bill payment will equal nine percent of total bill payments, up from five percent two years ago. Moreover, 42.5 million
households – nearly 37 percent of all U.S. households – are projected to bank online by 2007.

Online banking and bill payment is the optimal solution for consumers who want to simplify their busy lives, especially those with diverse banking needs, including bill payment, money transfer and account monitoring.

TIGHTENING SECURITY
New guidelines from the Federal Financial Institutions Examination Council (FFIEC) state that financial institutions should implement safeguards that go beyond protecting identities and data with just a username and password. The answer may be in new procedures that offer both more security and simpler online banking practices.

Consumer data held by banks is becoming increasingly valuable, in some ways even more valuable than the money in bank accounts, because the data can be sold and resold. Many believe high-risk transactions that expose a lot of data require stronger security measures.

“You can increase the security with the right technology, but that same technology should also simplify transactions—both online as well as across other media, such as on the phone with a call center,” says Chris Voice, vice president of Entrust, a provider of technology to secure digital identities and information.

Jonathan Penn of Forrester Research recently told an audience, “Authentication needs to be a toolbox, and you need to coordinate those tools in real time.”

Authentication is a broad term for the procedures a bank uses to make sure a customer is who he says he is.

Adds Penn, “It’s not just throwing money at the problem and creating a big security barrier. It’s working with customers to not only protect them, but also make their lives easier.”

A new survey commissioned by Entrust shows that 94 percent of consumers are willing to use additional security measures when banking online. Ironically, however, 81 percent of respondents to the same survey indicated that they would not pay any cost for increased security. Part of that partnership may involve banks making customers more aware of what banks are doing to protect them.

“Customer advocacy means security needs to be more visible, to show that banks are protecting their customers,” says Penn. “In defining what we call the “risk engine,” banks can use lightweight authentication for low-risk transactions, and can use stronger authentication for higher risks. The authentication toolkit can contain solutions like e-mail notifications, challenge questions, grids, desktop profiling, secure cookies and digital certificates.”

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