Understanding Interest Rates

Meet Brian Vokmann, CFO

Danielle 00:00
Hello and welcome to the A Plus You Podcast, where we chat with our internal experts and community members about how finances affect us in the real world, translating complex subjects to lively discussions brought to you by Affinity Plus Federal Credit Union. I'm your host, Danielle Johnson,

Amber 00:15
And I'm your co host, Amber Shanley.

Danielle 00:16
So Amber was just telling me before we started about she has a mouthful of royalty.

Amber 00:22
I do I think that there might be three or four crowns in there, but the reason we were on that topic is because our guest just left the dentist, and while the dentist is never fun, he said it was fine, and I'm always welcomed back within two weeks after my dental appointment, it's not fair...

Danielle 00:46
Brian, what was your comment? You're not sure what's worse...

Brian 00:49
First podcast or the dentist.

Danielle 00:53
Well, today, as you heard, we're joined by Brian Volkmann. Brian is our CFO here at Affinity Plus, and it's my understanding, Brian, you started with Affinity Plus in Mankato?

Brian 01:06
Yeah, I started at our camp on campus branch in Mankato a long time ago, and I just loved credit unions and Affinity Plus, right from the from day one, and it's been a fantastic journey at Affinity Plus since then.

Danielle 01:20
So did you go to Mankato? Is that how you ended up at our campus branch?

Brian 01:24
Yes, I'm from Southern Minnesota, small town outside of Mankato, St Clair, and going, went to MSU Mankato for college, and started working there while I was going to school. And it was just, it was awesome. Was such a great experience.

Amber 01:37
So never left.

Brian 01:39
I never left. Started on campus and just continued staying here at Affinity Plus.

Amber 01:44
That's amazing

Danielle 01:45
I know, because how many campus branches do we have?

Amber 01:47
Seven

Danielle 01:48
So see one of you listening, you could be CFO one day.

Brian 01:51
That's right

Danielle 01:52
From our campus branches. Well, that's awesome. How did you end up as a senior leader here?

Brian 02:00
So I was in Mankato, and there was a real estate leader of real estate opening was there, and actually, Dave, our our CEO, he kind of pushed me to apply. He's like, Hey, you should apply for this. And it was up in the cities, and I was in Mankato at the time, and I was like, I'll give it a chance, to give it a try. And so I applied for the job and got it, and had to really relocate it up to the cities. And it was, it was great. So I've done, I've led real estate and call centers, lending a lot of different background at Affinity Plus to get to the CFO role, I went and went back to school while working, and got a master's degree and a master's in finance, which helped me with the with the CFO side of things, but certainly the branches and lending is a key component of, I think, my role in understanding how our branches work and how it works working with members, and it's really, I think, makes it well rounded in the role.

Amber 02:54
Well, I think just the exposure you've had has allowed you to see all aspects of Affinity Plus, so it's not just making decisions in a bubble. It's really looking at all areas and really looking at the financial impact of each each one of those, and everyone plays a different part.

Brian 03:10
Yeah, for sure. And I think that's, you know, our core value of caring really comes to life. And when you have that branch experience and call center and lending experience and working one on with one on one with members. It's really important. I think it really helps out and translate when you're setting rates on all of our loans that you know this is also about the member that's coming in to buy their first home or buy their first car. And it's, it's a really it's really neat to make sure we always are thinking about the member that's coming in next or that our employees are helping out with

How Interest Rates Are Set

Amber 03:38
Absolutely. And I think that's such a great segue, because today we're going to talk about interest rates. And with those, there's, it's something we're always hearing about. The Fed is meeting consistently on these sometimes special sessions, things like that. So back to interest rates and making decisions for our members. How are members impacted by rates like that's that can't be an easy decision to just set a rate and run for it.

Brian 04:01
Yeah, so there's a lot that goes into setting interest rates. Obviously, the market rates play a big part of that. The Federal Reserve sets the Fed funds rate, and they set that and that impacts, really, it's shorter term items, but like, mortgages and things like that, are affected by longer term rates. So like, the 10 year treasury is not a direct impact from the Fed. And so we really look at, you know, interest rates from the Fed to the two year treasury to the 10 year to say, hey, what? What should our interest rates be on car loans and mortgages and things like that? So we really set it based on, on market rates competitors, you know, things that our members are looking at, there's a lot that goes into into setting rates, but the the Fed is one everybody hears about. And I think there's sometimes a misperception of that they set the rates for everything, and they really don't, they really, they're really focused on the shorter term rates. And so their impact on like mortgage rates, isn't as as immediate, and it isn't as you know, they don't always impact it as much. Much as people think

Amber 04:02
So that would be why, like, rates don't change immediately if the Feds lower if the Fed lowers rates.

Brian 05:00
Yeah, so like credit cards and like home equity line of credit loans that are, like, adjustable rate and use the Fed funds rate as the as that index, if you will, that those are impacted, you know, pretty quick after but you know, long term, 30 year mortgage rates are generally not, you know, not, not correlated directly with the Fed Funds rates. You really have to look at like that 10 year treasury to see where mortgage rates are at in the fluctuations in that rate.

Danielle 05:32
And so that's an example of how you know you and those around you, I guess, make those rate decisions. And that's why our rates are different than, you know, some other banks or other credit unions. Everybody is a little bit different in their decision making. Is that how that works?

Brian 05:49
Yeah, I think so. I mean, I think we definitely, you know, try to pay attention to competition. We want to make sure offering fair rates to our members on both the loan and the deposit side, managing, managing both those but yes, different credit unions and banks have different needs at different times as well. And so, you know, you'll see a CD special at one institution, and it's they're trying to raise, you know, deposits and liquidity. And so it's just, you know, each each credit union and bank manages their balance sheet and use interest rates to to impact that.

Danielle 06:18
Oh, that's interesting, I guess, to put it in that perspective, I guess for people that don't do what you do every day.

How are rates affected by Inflation?

Amber 06:26
So what role does inflation play on rates?

Brian 06:29
Yeah, so the Fed really has two main focuses that they focus on, and the first one is or inflation and unemployment are the two. So they have kind of a dual mandate. They want to make sure inflation stays around 2% and unemployment is that as a not zero, but a point where what they consider like full employment. So somewhere around 4% ish and and so if unemployment and inflation are there, they try to keep the interest rate where the economy is coming along, not growing too fast, not not growing too slow, and unemployment is in good spot, and inflation is a good spot. And so like in 2022 and 23 when they really increased rates, it was to come combat inflation. And so trying to get the economy to slow down, inflation to slow down. And now they started, you know, to slow down. And you know, started to reduce interest rates a little bit. And they see inflation has come down, but they're worried about employment now and when, and economic growth. And so those are the kind of the two balances that they're always trying to figure out is, where are we at with inflation? Where are we at with employment in the in the US? And so that's always a fine balance with those two. So, like, on, like, I think, with, you know, members that are looking to buy a home, or, you know, trying to buy your buy your first time home, or buy your second home. You know, I think with where you know rates are at, they fluctuate all the time. And I think sometimes people, especially now, are like, well, you know, the Fed's going to lower rates. And that's what everybody thinks the Fed's going to keep lowering rates. So I'll wait. Well, you know, the thing is, the Fed doesn't directly control mortgage rates and, and so, you know, my advice is, like, you have to look at, you know, homeownership over a long term. People don't usually buy a house to to flip it in one to two or three years. You're generally, most people are in their houses for seven years or eight years or 10 years. And so you really have to look at it at a much longer term viewpoint. And if you can afford with where rates are at today, I'd say, you know, you're probably better off just going for it. And if rates do come down, you can always refinance, or you can look at like an adjustable rate mortgage. And I think, you know, something that our employees do a phenomenal job with is providing advice to members and helping them, you know, determine what product is best for them, what term is best for them. And I think that's something when, when you're, you know, thinking about buying a home if you have some money for a down payment, if you're if you have that, you know, where your affordability is, is there. I definitely, you know, talk with our employees. I think they do such a phenomenal job in helping to provide that advice for members. And even when rates are higher, right? I mean, this is, you know, rates are definitely higher than they've been over the past few years, or, you know, three or four years ago, but at the same time it's, it's still, it's about that affordability. If you can afford it, it's still, it's not a bad time. I think you know, if you look at house prices over seven to 10 years, you're probably going to be in a pretty good spot.

Amber 09:12
And we'll have Tara Rutz , who leads our real estate team, on in a couple episodes here. And I believe that she's probably going to mention something very similar, because saving for a down payment and taking that step into home ownership is a big decision. But also, what you also said was you can always refinance for a lower rate, and there's no there's not really a reason to be afraid of refinancing. And I think that sometimes when you have a mortgage, it's like, oh my goodness, the cost associated with refinancing. It's going to be the same as when I purchased my house. And that's not necessarily true, and you should always explore different options if you are rate sensitive, but not not having the rate make the decision for you today if you're feeling confident in the home buying.

Brian 10:00
Yeah, yeah

How Auto Loan Rates are affected

Amber 10:01
I like that. Would you say the same is true for auto lending? Like, if I was looking for a new car today, rates are higher than they were. Same thing with the house, with the housing market.

Amber 10:10
Exactly, and like you said, our employees do such a great job of sharing that difference with members and making sure they're feeling confident in that monthly payment versus just focusing on that rate.

Brian 10:10
I think, you know, rates on car loans are certainly higher today, but I also think it's, it's slow down demand, so you have a little bit more negotiating power when it comes to the cars that you're buying. There's more vehicles on the lots today than during COVID. That was difficult to find cars. And so there's always balances, right? When rates are higher, you know, not as many cars are being sold, so dealers, you know, have a little bit more of that need to negotiate. And so I definitely think it's similar to that. And you know, auto loans are much shorter term, you know, so they're five year term or six year term suit. So the the change in interest rate isn't as significant as it is with a mortgage. When you're talking about 30 year mortgage versus a five year car loan, those changes in interest rates aren't, aren't nearly as you know, impactful when it comes to the the payment of your of your your car loan payment, or your home payment.

Brian 11:06
For sure!

Amber 11:07
It's the balancing act of payment versus rate.

How Credit Card Rates are Set

Danielle 11:11
Well, we kind of just got through the holiday season and thinking through like credit cards, you kind of mentioned that that was something that can change quickly with fed rates and everything like that. So maybe kind of speak to credit cards and the interest rates, and maybe kind of the differences between, I know, some credit cards are very high interest rates, some are lower. And just like how that can be impactful in someone's finances.

Brian 11:35
Yeah, so like most credit cards are tied to, like the Fed funds rate, or, you know, some sort of index, and not always fed funds but, you know, so as the Fed lowers rates, your interest rate may go down a little bit, but credit card rates are really high, you know, they can be really high, you know, to start with. So you now, we just have to look at that kind of full picture. And, you know, I think with, like with our credit cards, they're, they're tied to the Fed funds rate. And so as the Fed's lowering rates, those rates start to come down a little bit at a time. And I think our interest rates and our credit cards are very competitive. And so I definitely think if you have a credit card outside of Affinity Plus, you should check Affinity Plus, even with where rates are at today, our rates are likely lower than than others out there. So that's always one. I think there's also, you know, I was looking at balance transfer offers. We do those periodically, where you get a lower rate to do a balance transfer. And so those are things that you can do. And so I think credit cards, and I do think you know, something to you know, really look at is making sure that your payment is covering, you know, the interest in your you're focusing on your highest rate items, and you're repaying things first is always important. It's always good to pay down the highest interest rate, regardless of what it is first, and kind of maintaining that healthy balance on the card, you know, kind of a good mix, and working to not have your credit cards maxed out, some of those things will really make a difference in the long run.

Danielle 12:53
Well, I was just kind of thinking, you know, we've talked a lot about, like, mortgages and loans and credit cards and kind of like on the borrowing side of interest rates and what that looks like for for personal finances. But talk a little bit about, if you would, you know savings accounts certificates, and kind of how interest rates work in that sense. Because I think there might be some people out there who are hesitant to put their money in an account, in any in any financial institution, but kind of how that works with a savings account or a CD where you could maybe make a little bit of money.

Higher Interest Rates Means More Return on Investments

Brian 13:29
Yeah, I think, you know, that's one thing. Like, you know, when we're at zero interest rates for a long time, you know money in a CD or a money market was earning almost nothing, and today, now that you know, people that are trying to save, and savers you certainly get, you know, additional funds you can get, you know, 4% CDs and things like that. And that's that was unheard of a few years ago when, you know, interest rates were at zero. And so I think that now is definitely a time to make sure you're shopping around and looking and I think our superior money market is a great product for our members that is a high rate money market with flexibility, so you don't have to keep it in for any length of time. You can, you know, move it in and out. It's just, it's similar to a savings account. And then our CDs, you lock the money in for 12 months or 18 months, whatever term you're picking, and you can earn a little bit higher interest rate based on on the terms. And so those are a good balance. And, you know, I think on one of our, one of our unique products that we offer is our wincentive. So it's a product that encourages savings, and for every $25 you put you save, each month, you get entered into a drawing, into potential.

Danielle 13:29
I won, haha.

Brian 13:44
Yeah, it's great. I think it's a great way to encourage savings, and you still have that opportunity to potentially win. You know, every month we do drawings, and I you see the list of members that win every month and employees that win, and it's just, it's cool that, you know, it's kind of that rewarding for savings, and it's a unique product, and I think one that our members should know about, and it really does encourage that savings and building those habits, I think are really important

How Investments are protected

Amber 14:58
when I think about just the security. Of keeping your funds in a savings account or a CD versus like mattress money, like you're not earning any money, any interest, excuse me, on the funds sitting at home and you're safe or under the mattress, whatever it may be, but putting it into a savings account or a CD is far more secure, and there's protections for our members and other members at other credit unions, other financials. Can you share a little bit about those as well?

Brian 15:24
Yeah. So our, all of our deposits, up to the $250,000 on deposit are insured by the National Credit Union Administration, and no insured funds have ever been lost in a credit union since the 1930s when, when the NCUA, when the insurance fund, was established. I think that's a really important piece, is that your money on deposit is insured. It is safe and secure spot to have it. It is definitely better than the mattress money, because you do can earn interest. And, you know, compounding is a really important aspect of it. And so I definitely, you know, think those, those added things like the NCUA insurance, are really important for people to understand. And really, you know, an important piece if people from other countries have not had that protections and lost money and and things. And so I think, you know, having your money and insured credit unions is a great place to have it

Amber 16:14
absolutely and I think it's just reinforces what the care and the care and thought that goes into setting those rates. It's to help ensure that members are earning something while their funds are here, but also demonstrating that safety security. It's like we're paying you to have your funds here. It's definitely a wonderful piece at Affinity Plus.

The Affinity Plus Investment Center

Brian 16:37
Something else I'd also add is, you know, we have our the deposits at Affinity Plus are insured, but we also have our investment center that helps, helps members, you know, set up if you're looking to invest in the long term and or set up college funds for your kids. And I think our Investment Center employees do a nice job of helping, you know, helping to develop a, you know, an investing plan for our members that is outside of the credit union, so it's not NCUA insured, but I think that is a great opportunity for somebody that's looking to get an investing or somebody that has a portfolio that just wants to sit down with somebody, and then, similar to our employees in the branches that help with, you know, somebody wants to buy a home, or, you know, wants to buy a car and looking for advice, our employees and Investment Center do such a phenomenal job of helping to set up, you know, that that long term view, and put people in a great spot,

Amber 17:24
and we'll help organize your funds like that's the other side of it too. Our investment center doesn't have a minimum to sit down with them, and even if you don't do any business with them, that's okay. It's meeting with someone to establish a plan. It could be talking as referring back to the credit union and structuring CDs and setting a member up for success that way, if they don't want to go outside of the credit union, but just the knowledge there alone to ensure that a member is meeting their financial goals is exponentially something that everyone seems to be really excited about.

Brian 17:57
Yeah.

Danielle 17:58
Well, and I think too, it just goes back to, you know, that that care and thoughtfulness that we give to members, like, we have this whole opportunity for you to, you know, sit down with a financial planner who that's kind of intimidating. Like, I mean, I think of myself as, like, I feel like it's just like a regular person, and I'm like, you know, I have a financial planner, and someone's like, oh, and I'm like, no, no, no. It's not like that. I just want to make sure that I'm like, saving properly, and that I am going to be able to retire someday. And sometimes my financial advisor, you know, the person I talk to, is just like, you need to do better, or you need to, you know...

Amber 18:34
I'll give -

Brian 18:35
- spend less on dental,

Danielle 18:36
Yeah!

Amber 18:37
I'll give a plug for Corey, at our university office. I mean, I just walk into his office at least every other week and he reminds me that I didn't need Starbucks that day, but I remind him I did to be a good human.

Danielle 18:52
Well, it's just not meant to be intimidating. It's meant yes, like, you know, yeah, we can absolutely set you up with some some plan for success. And like you said, whether that's go back on the credit union side and do this, or we can do this here, because we don't have minimums, like, it's just meant to be, like people helping people. It's meant to be a trusted resource. Yeah, it's not meant to be something intimidating or scary or fancy, like anybody can do it and has access to it. I

Brian 19:21
I think that's something great about Affinity Plus, right with these are the types of services and things that we offer to our members, and that's what's really important about it, is that our we really strive to have our employees focus on doing the right thing for our members, and really focus on, hey, let's do the right thing. And if it's they're talking to somebody in an investment center and and Corey is like, you want to know what a CD might actually be better for you in this situation, for what you're looking for. And I think that's the piece that I really love and appreciate about Affinity Plus, is that that that care, that our employees demonstrate, whether it's Investment Center or real estate employees, they just do such a phenomenal job of looking at that member and figuring out, okay, here's your goals, here's what you're trying. Accomplish. And here's what I think is the, you know, the best plan that I would advise you on. Another thing that I would add is on, you know, interest rates are certainly in a very important piece of of the payment when you're buying a home or buying a car. But another, really, you know, critical thing is your credit score. And, you know, I think really, really looking at what your credit score is, and our app does a phenomenal job. You can go out and check your credit score. There's what ifs on it. I think, really looking at your credit score and like, what are the things that you can do to improve your credit score? Because sometimes moving your credit score from a 650 to a 730 will have more of an impact than the Fed, lowering rates a quarter percent. And so, you know, I think the like, sometimes we look at what the you know that rate is to buy a home, but your credit is equally as important. So really making sure that you know you're you're doing the things you're keeping your your balances on your credit cards lower. There's a lot of really good advice in our app that's personalized to you and tailored to your profile that I think people really should take advantage of, because it's it's a great way to look at that that is one way where you can save a lot of money on interest by having an improved credit score and having or keeping your credit score high if it's already high. And so definitely, you know, look at that as balance with with interest rates, credit score, and also down payment. Right. Down payment is an important piece too. If you're buying a car, if you have a down payment, you're going to get a better interest rate than not having it. And so really thinking about those, those things are really important when it comes to, like, what your payment will be for your first home, or your second home, or your first car, things like that.

Danielle 21:26
That's a great point, because I think we think of interest rates as this big, like number, or this big concept that we hear about so much. But then there's, you know, it's almost like, what, like a tripod, right? It stands on three legs, or it's a table. You have four legs. And it's not just this one thing that's holding everything up.

Down Payments and Loan to Value

Amber 21:44
Well and I think something that you said too, is your credit score isn't is an impact to this and down payment? Why does that matter? Why does down payment matter?

Brian 21:53
I think that there's a the down payment piece. Because, you know, if you're buying, you know, for your homes, 350,000 so you're buying it for, you know, a $350,000 mortgage is much different than 300,000 right? And and so that that your the loan to value, kind of that 300 pided by that 350 the lower that is, you might not have private mortgage insurance. You and interest rates are generally better the lower your loan to value. And so if you're at 95% loan to value, you're probably going to pay the higher rate. And so that's a really important piece. Is, you know that that down payment component of whether it's buying a car or buying a home is really important so that the down payment, the credit score, those those pieces are important. And also term. You know, if you do a shorter term, it's generally a higher or, sorry, generally a lower interest rate than if you do a longer term and so it's always trying to balance those items. But, you know, most people buying home, you're you're looking at the 30 year mortgage, because that's the one that's going to provide the most affordability, but it's also, you know, higher rate than a 20 year or 15 year. And so it's always balancing interests and your payment and your loan to value are really important pieces when, looking at that kind of total picture, if you will, of of what you're going to be paying each month

Use Calculators and other Tools to make informed financial decisions

Danielle 23:04
Well and as you were saying that, I was thinking of a really great resource that we have on the website. We have calculators, and they're very interactive in terms of, you can put your term, you can look at the interest rates and say, Okay, if I do a 15 year or 20 year, and you can kind of adjust all that, whether it's a car loan or a mortgage, and you can kind of see how that will all kind of like play out when you're kind of in this state of, where am I at? What am I going to do? Or just wondering, in general, if you can afford a new car or a home or something like that?

Brian 23:36
Yeah, yeah. Those calculators are very popular, very well used, and our members love them. Get lots of good feedback on those. So those are definitely a spot to go out and check and kind of play around right of like, what? What's the loan to value? What's the all of those things matter in it. So it's those are. Those are great tools out there for members

Amber 23:52
And you can run that concurrently with the credit score tool that you were talking about with those. Run it what if scenarios, so you can feel confident that you're comfortable with the payment, but then you know what the impact is going to be on your credit to be on your credit score as well, and make a good decision for yourself. But also come in and partner with an employee to help guide you in that decision and ensure you're set up for success the way you want it to be.

Brian 24:15
Yep, for sure.

Last Thoughts from Brian

Amber 24:16
Well, Brian, as we wrap up today, what are some final tips and tricks that you have for our members and or just the general public?

Brian 24:24
Yeah, I think, you know, first and foremost, our employees do such a phenomenal job as is reaching out to our employees, like looking for trying if you're looking for advice and things like that. Our employees do such a great job of of understanding your goals and what you're trying to accomplish and helping point you in the right direction with our products and services and and so I definitely think that's a great spot to start. I think the other one is, you know, if you're buying a car, is like, shop around, make sure you're looking at, you know, multiple options and, and not just, you know, not just taking the first one that you see and looking at, you know, multiple options is really, really important. And I think, you know, as we talked about before, of like that, down payment, you know, the mix of. And payment credit score. And, you know, term is really looking at those to say, hey, how what's that best profile mix for me is, is, is important, and making sure that you're, you know, kind of thinking through all the aspects of it. It's not just interest rate. While we're talking about interest rates, it's certainly a very important piece of it. There's other components that go into it. And I think really managing your your credit as best as best as possible is something that's really important as well.

Danielle 25:22
Well, Brian, we really appreciate having you today. You're just a wealth of knowledge. I really hope that this was a little less painful than the dentist.

Brian 25:30
It definitely was. You do a very nice job.

Danielle 25:35
But we definitely, you know, as kind of market trends change and and just us as Affinity Plus, evolve and change. We'd love to have you back sometime. So yeah, the door is always open for you to come visit and and tell us, give us more of your knowledge.

Brian 25:50
Yeah, I'd love to come back. This is great. Thank you so much.

Amber 25:52
Thanks everyone for joining us today on a plus, you be sure to follow us wherever you listen to your podcast, to continue to learn more about banking and stay up to date on with Affinity Plus to learn more about Affinity Plus visit us at AffinityPlus.org.