This decision marks the end of an era, and it brings up important questions for consumers and businesses alike. While it may seem like a small change, the removal of the penny from production will have noticeable effects on how we handle cash transactions. We are here to walk you through why this change is happening, what it means for your finances, and how you can prepare.

Why is the penny being discontinued?

The decision to stop minting the penny was not made lightly. It came down to a combination of practical economics and shifts in how we use money. For many years, the cost to produce a penny has been more than its face value.

According to the , it cost 3.69 cents to make a single one-cent coin. This was largely due to the rising prices of the metals used in its production, primarily zinc and copper. When you consider that the Mint produced billions of pennies each year, the financial loss became significant. In fiscal year 2023 alone,.

Beyond the cost, our spending habits have changed. The rise of debit cards, credit cards, and digital payment apps means that .
With the penny’s purchasing power diminished by inflation over the decades, it has become more of a nuisance than a useful coin for many. This combination of high production costs and low utility made its continuation impractical.

What does this mean for you as a consumer?

Even though the U.S. Mint is no longer making new pennies, the coins you already have are still legal tender. This means you can still use them to pay for things, but you will likely see them less and less over time. The biggest change you will notice will be in how cash transactions are handled at the register.

Without a steady supply of new pennies, retail businesses will begin rounding cash totals to the nearest five cents. Here鈥檚 how that will work:

• If your total is $5.81 or $5.82, it will be rounded down to $5.80.
• If your total is $5.83 or $5.84, it will be rounded up to $5.85.
• If your total ends in 6, 7, 8, or 9, the same logic will apply.

It’s important to remember that this rounding only applies to the final total when you are paying with cash. Transactions made with a credit card, debit card, or check will still be charged for the exact amount. While some states have laws requiring exact change, we expect federal guidance to provide clarity for retailers and protect consumers.

What should you do with your pennies?

You might have a jar of pennies sitting at home, and now is a great time to put that money to use. The typical household

Turning them into usable cash is a simple way to give your budget a small boost.

You have a few options:

1. Deposit them at your bank or credit union: Many financial institutions will accept rolled coins from their members or have coin machines at their branches that you can dump them into in exchange for cash.
2. Use a coin-counting kiosk: These machines, often found in grocery stores, are convenient but usually charge a service fee that can be as high as 12%.
3. Spend them: Since pennies are still legal tender, you can always use them for small purchases.

Keeping your spare change in a high-yield account like our First Rate Checking is a much better option than letting it sit in a jar. Your money can earn dividends and keep its value against inflation.

How will this affect businesses and financial institutions?

For businesses, the transition away from the penny requires a few adjustments. The most immediate is updating point-of-sale (POS) systems to handle the new rounding rules for cash transactions. Clear communication with both employees and customers will be key to preventing confusion and frustration at checkout.

Financial institutions will play a vital role in helping the community adapt. This includes educating members about the changes and continuing to accept penny deposits to help recirculate the existing supply. It also presents an opportunity to guide members toward convenient digital banking and payment solutions that eliminate the need for physical change altogether. Those signed up for direct deposit and eStatements on our First Rate Checking can enjoy earning more on your first $1,000.00.⁵¹

As your financial partner, we are committed to making this transition as smooth as possible. We will continue to accept your coins and are always available to answer any questions you may have about managing your money in a changing financial landscape.

A farewell to a familiar coin

The end of the penny is a sign of the times. As our economy evolves, our currency must adapt as well. While we may feel a bit of nostalgia for the iconic coin, the move away from the penny is a practical step toward a more efficient financial system. By understanding these changes and taking simple steps to adapt, you can ensure the transition is a seamless one for your finances.

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Inflation peaked at . Since the Fed has been making their efforts, the inflation rate had dropped to 3.2% in July 2023, but rose again to 3.7% in August. The Fed鈥檚 next meeting is currently scheduled for November 2023.

The Fed rate determines what banks charge each other for overnight lending and acts as a guideline for what banks and credit unions charge on consumer and real estate lending. We caught up with 91黑料网 First VP of Risk Management John Thomasian to discuss the Fed鈥檚 recent decision and what implications it may have on the future of the economy.

Why is the Fed holding the rate now after so many rate hikes?

The Fed’s main goal with the current tightening campaign is to slow the economy in order to reduce inflation towards a target level of 2%. The risk in doing so is to not slow the economy so much that it enters a recessionary period. It鈥檚 a fine line the Fed must walk in order to achieve this goal. If they raise rates too much it could be harmful to the economy. If they don鈥檛 raise them enough, inflationary pressures will persist.

Has inflation decreased since they began raising interest rates and by how much?

The Fed started raising rates in March of 2022 and has made improvements in decreasing inflation, but there is still more work to be done to achieve the target 2% level. Headline inflation (inflation that includes the cost of food and energy – as opposed to core inflation which does not) was increasing year-over-year in October 2022 at a rate of 7.70%. The most recent statistics show a year-over-year increase of 3.70%, illustrating the Fed鈥檚 tightening campaign has sent inflation in the right direction but hasn鈥檛 hit their target level of 2% just yet.

Will they meet the target of 2%?

Time will tell, some economists believe 4% may be a new normal.

When might we expect to see a change in the cost of goods, or mortgage rates?

Despite restrictive monetary policy, the economy has continued to grow, which has caused investors to bet that the Fed will maintain high rates for a longer period of time. Inflation has risen for two consecutive months, and while this has been driven primarily by higher energy costs which are not necessarily impacted by monetary policy, the Fed is concerned about a lack of progress towards the 2% target. Consensus is rates could stay up longer given recent data, with the first rate cuts not occurring until September of 2024. But the Fed has been transparent in stating they will let the data dictate their course of action.

What other things can we expect to see happen in the future?

Given today鈥檚 financing rates, we will continue to see less lending across all sectors. This will help battle inflation but inevitably will slow the economy as a whole.

For more insights from John Thomasian about the Fed rate, see The Fed rate rises again. Here鈥檚 what you need to know.

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How might the rate change affect the housing market for people looking to buy or sell?

The Fed increasing the Federal Funds Rate has a significant effect when it comes to financing a home. The cost to finance a new house becomes much more expensive to the buyer/borrower. Higher interest rates decrease the buyer鈥檚 purchasing power. For example: say buyers who were prequalified for $400,000 at a 5% rate in June of this year find the house they would like to buy in September with financing of $400,000. In September, the rate is now 7%. They can only qualify to finance $300,000 at that rate. As a result, the sale can no longer proceed.

Sellers will be forced to decrease their listing prices in order to attract buyers because of higher financing rates. Home sales year-to-date in the local region have decreased by approximately 30% from the previous year. Houses were selling at a record pace in 2021 with average listings lasting 30 days or under. Today鈥檚 current listings are staying on the market for a much longer period. We are continuing to see listing prices decrease as a result.

How might the rate change affect people with money in the stock market?

With rate increases effecting multiple sectors of the economy, it has led to high volatility throughout the stock market. The majority of economists are predicting an economic recession as a result of the rate increases. This has changed the stock market to turn from a bull market (when the stock market is gaining value) to a bear market (when stock prices fall) over the past year. As a result, the three major indices have all realized significant losses year-to-date. During these times, investors have looked for a safe alternative and have withdrawn their cash from the stock market to open certificates which will obtain a better return. 91黑料网 First has provided certificate specials throughout the year to give members a higher rate of return without having to worry about losing money. Now is a great time for the savers out there to take advantage of these higher yielding accounts!

How might the rate change affect the price of goods during the holiday shopping season?

The Fed鈥檚 primary concern right now is to curb inflation and their tool to do so is increasing borrowing rates. Although this doesn鈥檛 have an immediate effect and could take some time before we realize results, the ultimate goal is to bring down prices of goods. Most recent data shows inflation continuing to increase which will make holiday shopping more expensive. Overtime, as the rate increases take effect we should see prices on goods go down. Unfortunately, I don鈥檛 think it happen in time for the upcoming holiday shopping season.

How might the rate change affect people with adjustable rate loans and what advice would you have for them?

Adjustable rate loans can have pros and cons to them. The term, when they are scheduled to increase, the incremental increase amount, what index they are based off of, the time period they were opened in, and the amount they can increase by, all contribute to advantages and disadvantages to the borrower. Typically, financial institutions price their adjustable rate loans to be lower than their fixed rate loans.

About adjustable rates

Adjustable rate loans are usually fixed for a certain duration of the loan where the rate increase won鈥檛 come in effect for a number of years. For example: one of the 91黑料网 First鈥檚 most popular products is its 7 & 1 adjustable rate mortgage (ARM). Those loans are fixed at their original rate for the first 7 years and are scheduled to adjust only after that time period. Interest rates on a 7 & 1 adjustable rate mortgage are approximately 1% lower compared to a 30 year fixed rate mortgage.

This makes the adjustable rate mortgage more affordable for the first 7 years of the loan. It allows borrowers to save more in financing cost during that time period vs. the higher fixed rate. As an example: say your loan amount was $350,000 with a variable rate 7 & 1 @ 5.00%. Compared to a fix rate @ 6.00%, the savings in the first 7 years would be $24,373 in interest. To compare interest on adjustable rate and fixed rate loans, utilize 91黑料网 First鈥檚 calculators.

Looking ahead

Interest rates are expected to decrease once the Fed gets inflation under control. If fixed rate mortgages drop by 2%-3% 5 years into a 7 & 1 adjustable rate mortgage, it allows the borrower the opportunity to refinance before it adjusts. They could potentially see no rate increase when the adjustable rate comes into effect because the index it鈥檚 tied to didn鈥檛 increase, or it decreased by the time the rate adjustment comes.

The best advice I can give to borrowers with adjustable rate loans is to understand the terms of their loan so they can plan accordingly. If you鈥檙e in an adjustable rate product that鈥檚 continually repricing now, look at fixed rate refinance options as an alternative. Credit Card debt is a great example of loans that continually price their interest rates up or down depending on the Fed rate. An alternative is to open a personal loan at a fixed rate and term where you don鈥檛 have to worry about interest rates going up.

Can members feel safe with their money at 91黑料网 First?

91黑料网 First takes great pride in being able to offer its members exceptional customer service and superior products to serve all their financial needs. The management team has positioned the Credit Union鈥檚 balance sheet for all interest rate environments. Our financial strength has given us the opportunity to offer competitive rates on our lending and deposit products. This in turn allows 91黑料网 First鈥檚 members to take advantage of our rates and products so they can be financially successful. 91黑料网 First is consistently awarded a 5-star rating from BauerFinancial is an independent company that rates all banks and credit unions based on reporting and financial data. We鈥檝e achieved 5-stars for over 30 consecutive quarters. Though the economy is continually changing, 91黑料网 First remains strong. With those statistics our members can rest assured knowing their money is safe with us!

The post The Fed rate rises again. Here鈥檚 what you need to know. appeared first on 91黑料网.

We spoke with 91黑料网 First鈥檚 Vice President of Risk Management, John Thomasian, to find out. He has over 15 years of experience in the finance industry with an expansive list of accomplishments including:

• Chairman of 91黑料网鈥檚 Asset and Liability Management Committee
• Graduate of Nichols College with a degree in Finance & Accounting
• Graduate of Eascorp鈥檚 Advanced Asset Liability Management (ALM) & Investment Academy
• Graduate of the National Association of Federal Credit Union鈥檚 (NAFCU) Management Development Institute
• Member of the NAFCU Political Action Committee
• Chairman of the Town of New Braintree Finance Committee
• Recipient of BusinessWest鈥檚 40 Under Forty 2021 award

With a list of credentials this long, we knew he could help us answer the important questions.

What is the 鈥淔ed Rate鈥�?

The Federal Funds Rate is the rate financial institutions charge each other for overnight loans. Credit unions and banks are required to keep a certain percent of their total deposits in cash at the Federal Reserve Bank. This leads to them either borrowing or lending their excess cash to each other overnight, and the Federal Funds Rate determines what they are charged or earn.

Why do credit unions change their rates because of the Fed Rate?

The Federal Funds Target Rate influences a credit union鈥檚 interest rates because when it is raised or lowered, deposit and lending offerings follow suit in order to maintain the credit union鈥檚 net interest margin. Net interest margin refers to the difference between interest earned (from lending) and interest paid (on deposits) by the credit union. Overall, net interest margin is a measure of profitability for the credit union. Changes made to the Federal Funds Rate will alter the cost of borrowings made to the credit union, which influences the credit union鈥檚 loan rates that they can lend to its membership.

Why is the Fed Rate increasing as much as it has?

The Federal Open Market Committee (FOMC) is responsible for the monetary policy of the United States by overseeing the open market operations of the country. The long-term goals of the FOMC are to ensure sustainable economic growth for the United States and guarantee price stability.

The FOMC has been increasing rates in an effort to bring down inflation which is currently at a 40-year high, and has increased by 9% year-over-year. The FOMC has a target inflation rate of 2% and in order to bring inflation back down to that target, the Committee has raised the Federal Funds Rate. By raising rates, borrowing becomes more expensive for consumers who in turn spend less. Demand then begins to drop and, in theory, inflation begins to decrease.

What does the rate increase mean for you?

If you have money in a deposit account that earns interest, a rate increase is good news! Although deposit rates typically increase at a slower pace than lending rates, this means that you will eventually be earning more in return off of the money you have sitting in your savings, checking, money market, and certificate accounts. If you owe on a loan that has an adjustable rate, like a mortgage, it may be in your best interest to refinance into a fixed rate. That will save you from having to pay more in interest as rates continue to go up.

To view the most up-to-date rates for all of our products, please visit our rates page.

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