Finance

IT IS FITTING that Manmohan Singh, who unshackled Indian trade and industry as the country’s finance minister in 1991, was the son of an importer. His father’s firm in Peshawar brought dry fruit and spices to India from Afghanistan. As a schoolboy, Mr Singh would fill his pockets with almonds and raisins that his classmates tried to steal. Even from an early age he appreciated the fruits of international trade. More

The Federal Reserve in December projected fewer interest rate cuts for 2025.
Yields on high-yield savings accounts, money market funds, certificates of deposit and other cash-like accounts should benefit from this “higher for longer” rate environment.

Images By Tang Ming Tung | Digitalvision | Getty Images

Many people, especially those with debt, will be discouraged by the recent Federal Reserve forecast of a slower pace of interest rate cuts than previously forecast.
However, others with money in high-yield cash accounts will benefit from a “higher for longer” regime, experts say.

“If you’ve got your money in the right place, 2025 is going to be a good year for savers — much like 2024 was,” said Greg McBride, chief financial analyst at Bankrate.

Why higher for longer is the 2025 ‘mantra’

Returns on cash holdings are generally correlated with the Fed’s benchmark interest rate. If the Fed raises interest rates, then those for high-yield savings accounts, certificates of deposit, money market funds and other types of cash accounts generally rise, too.
The Fed increased its benchmark rate aggressively in 2022 and 2023 to rein in high inflation, ultimately bringing borrowing costs from rock-bottom rates to their highest level in more than 22 years.  

It started throttling them back in September. However, Fed officials projected this month that it would cut rates just twice in 2025 instead of the four it had expected three months earlier.
“Higher for longer is the mantra headed into 2025,” McBride said. “The big change since September is explained by notable upward revisions to the Fed’s own inflation projections for 2025.”

The good and bad news for consumers

The bad news for consumers is that higher interest rates increase the cost of borrowing, said Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
“[But] higher interest rates can help individuals of all ages and stages build savings and prepare for any emergencies or opportunities that may arise — that’s the good news,” said Cheng, who is a member of CNBC’s Financial Advisor Council.
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High-yield savings accounts that pay an interest rate between 4% and 5% are “still prevalent,” McBride said.
By comparison, top-yielding accounts paid about 0.5% in 2020 and 2021, he said.
The story is similar for money market funds, he explained.
Money market fund interest rates vary by fund and institution, but top-yielding funds are generally in the 4% to 5% range.
However, not all financial institutions pay these rates.
The most competitive returns for high-yield savings accounts are from online banks, not the traditional brick-and-mortar shop down the street, which might pay a 0.1% return, for example, McBride said.

Things to consider for cash

There are of course some considerations for investors to make.
People always question which is better, a high-yield savings account or a CD, Cheng said.
“It depends,” she said. “High-yield savings accounts will provide more liquidity and access, but the interest rate isn’t fixed or guaranteed. The interest rate will fluctuate, nor your principal. A CD will provide a fixed guaranteed interest rate, but you give up liquidity and access.”

Additionally, some institutions will have minimum deposit requirements to get a certain advertised yield, experts said.
Further, not all institutions offering a high-yield savings account are necessarily covered by Federal Deposit Insurance Corp. protections, said McBride. Deposits up to $250,000 are automatically protected at each FDIC-insured bank in the event of a failure.
“Make sure you’re sending your money directly to a federally insured bank,” McBride said. “I’d avoid fintech middlemen that rely on third-party partnerships with banks for FDIC insurance.”
A recent bankruptcy by one fintech company, Synapse, highlights that “unappreciated risk,” McBride said. Many Synapse customers have been unable to access most or all of their savings.

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OENOPHILES, ART aficionados, petrolheads and all those who like the finer things in life have, alas, not had the best year. The prices of their luxury assets have tanked. An investor who put their money into art at the beginning of 2024 lost on average 16% by the end of November, according to the All Art index, a measure assembled by Art Market Research, which tracks sales at auction. Those who invested in fine wine lost about 11% over the same period, according to the Liv-ex Fine Wine 1000 gauge—the closest thing to a global benchmark for the wine industry. The price of diamonds has dropped by almost 20% and those of collectible cars are more or less flat. More

Treasury yields were slightly higher early Friday after a mixed set of data on weekly jobless claims.
The yield on the benchmark 10-year Treasury was 3 basis points higher at 4.607%, slightly down from its peak earlier in the week but back above the 4.6% level it had not breached since May. The 2-year Treasury was fractionally higher at 4.334%.

One basis point is equal to 0.01%. Yields move inversely to prices.

After the Christmas break, jobless claims data released Thursday for the week ending Dec. 21 came in 1,000 lower at 219,000, below the 225,000 consensus forecast from Dow Jones.
However, continuing claims rose by 46,000 for the week ending Dec. 14 to the highest level since November 2021.
The 10-year Treasury yield has risen more than 40 basis points in December as traders anticipate a more hawkish Federal Reserve in 2025. The central bank next meets at the end of January, when a rate hold is expected.
Monthly data on wholesale inventories is due Friday. More

The U.S. Treasury Department delayed a Jan. 1, 2025, deadline to file a new “beneficial ownership information” report by about two weeks, to Jan. 13.
It delayed the BOI reporting requirement following recent federal court rulings.
The requirement was created by the Corporate Transparency Act, which aims to curb illicit finance.

Janet Yellen, U.S. Treasury secretary, on a tour of the Financial Crimes Enforcement Network (FinCEN) in Vienna, Virginia, on Jan. 8, 2024.
Valerie Plesch/Bloomberg via Getty Images

The U.S. Treasury Department has delayed the deadline for millions of small businesses to Jan. 13, 2025, to file a new form, known as a Beneficial Ownership Information report.
The Treasury had initially required many businesses to file the report to the agency’s Financial Crimes Enforcement Network, known as FinCEN, by Jan. 1. Noncompliance carries potential fines that could exceed $10,000.

This delay comes as a result of legal challenges to the new reporting requirement under the Corporate Transparency Act.
The rule applies to about 32.6 million businesses, including certain corporations, limited liability companies and others, according to federal estimates.
Businesses and owners that didn’t comply would potentially face civil penalties of up to $591 a day, adjusted for inflation, according to FinCEN. They could also face up to $10,000 in criminal fines and up to two years in prison.
However, many small businesses are exempt. For example, those with over $5 million in gross sales and more than 20 full-time employees may not need to file a report.

Why Treasury delayed the BOI reporting requirement

The Treasury delayed the compliance deadline following a recent court ruling.

A federal court in Texas on Dec. 3 had issued a nationwide preliminary injunction that temporarily blocked FinCEN from enforcing the rule. However, the 5th U.S. Circuit Court of Appeals reversed that injunction on Monday.

“Because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, we have extended the reporting deadline,” according to the FinCEN website.
FinCEN didn’t return a request from CNBC for comment about the number of businesses that have filed a BOI report to date.
Some data, however, suggests few have done so.
The federal government had received about 9.5 million filings as of Dec. 1, according to statistics that FinCEN provided to the office of Rep. French Hill, R-Ark. That figure is about 30% of the estimated total.
Hill has called for the repeal of the Corporate Transparency Act, passed in 2021, which created the BOI requirement. Hill’s office provided the data to CNBC.
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“Most non-exempt reporting companies have not filed their initial reports, presumably because they are unaware of the requirement,” Daniel Stipano, a partner at law firm Davis Polk & Wardwell, wrote in an e-mail.
There’s a potential silver lining for businesses: It’s “unlikely” FinCEN would impose financial penalties “except in cases of bad faith or intentional violations,” Stipano said.
“In its public statements, FinCEN has made clear that its primary goal at this point is to educate the public about the requirement, as opposed to taking enforcement actions against noncompliant companies,” he said.

Certain businesses are exempt from BOI filing

The BOI filing isn’t an annual requirement. Businesses only need to resubmit the form to update or correct information.
Many exempt businesses — such as large companies, banks, credit unions, tax-exempt entities and public utilities — already furnish similar data.
Businesses have different compliance deadlines depending on when they were formed.
For example, those created or registered before 2024 have until Jan. 13, 2025, to file their initial BOI reports, according to FinCEN. Those that do so on or after Jan. 1, 2025, have 30 days to file a report.

There will likely be additional court rulings that could impact reporting, Stipano said.
For one, litigation is ongoing in the 5th Circuit, which hasn’t formally ruled on the constitutionality of the Corporate Transparency Act.
“Judicial actions challenging the law have been brought in multiple jurisdictions, and these actions may eventually reach the Supreme Court,” he wrote. “As of now, it is unclear whether the incoming Trump administration will continue to support the Government’s position in these cases.”

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About 93% of 401(k) plans offer a Roth savings option to workers, up from 62% a decade ago, according to the Plan Sponsor Council of America.
A law known as Secure 2.0 is expected to make Roth 401(k) accounts more prevalent.
Choosing between Roth and pretax savings is essentially a tax bet.

Filippobacci | E+ | Getty Images

Retirement savers, take note: more employers have added a Roth savings option to their workplace 401(k) plans.
And, due to a legislative change, it’s likely the remaining holdouts will soon offer it, too.

About 93% of 401(k) plans offered a Roth account in 2023, according to an annual poll published in December by the Plan Sponsor Council of America, an employer trade group.
That’s up from 89% in 2022 and 62% a decade ago, according to the survey, which polled more than 700 employers with 401(k) plans of varying size.

How Roth, pretax 401(k) savings differ

Roth refers to how retirement savings are taxed.
A Roth is an after-tax account: Savers pay tax upfront on their 401(k) contributions but, with some exceptions, don’t pay later when they withdraw money.

By contrast, pretax savings have been the traditional route for 401(k) plans. Savers get an upfront tax break, deferring their tax bill on investment earnings and contributions until later, when they make withdrawals.

It seems like many aren’t taking advantage of Roth availability: About 21% of eligible workers made a Roth contribution in 2023, versus 74% who made a pretax contribution, according to PSCA data.

How to choose between Roth or pretax contributions

Choosing which kind of 401(k) contributions to make — pretax or Roth — largely comes down to your current tax bracket and expectations about your future tax rate, according to financial advisors.
You want to choose the one that will keep your tax bill lowest. In short, it’s a tax bet.
This requires some educated guesswork. For example, many financial advisors recommend Roth accounts for those who are early in their careers, a point at which their tax rate is likely to be lower than in the future, when their salary will almost certainly be higher.
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“We always recommend [Roth] for someone who’s in a low salary, typically the younger working folks,” said Olga Ismail, head of retirement plans consulting at Provenance Wealth Advisors.
“It’s the lowest tax bracket you’re ever going to be in, so why not take advantage of it now if you can?” she said.
A Roth 401(k) also provides a unique savings opportunity. Roth individual retirement accounts — Roth IRAs, for short — have a lower annual contribution limit than 401(k)s and have income caps on eligibility. A 401(k) has no income caps. So, a Roth 401(k) lets higher earners access a Roth account directly, and allows all savers to contribute more money to a Roth account than they could otherwise.

Financial planners also generally recommend diversifying among pretax and Roth savings. This grants tax flexibility in retirement.
For example, strategically withdrawing money from a Roth account for income may keep some retirees from triggering higher premiums for Medicare Part B and Medicare Part D. Those premiums may increase with income — but Roth withdrawals don’t count toward taxable income.
Also, while many people expect their tax rates to decline in retirement, this isn’t always the case.

Why Roth 401(k) adoption will increase

More savers will likely soon have a Roth 401(k) option available to them if they don’t already.
A 2022 retirement law known as Secure 2.0 will require “catch up” 401(k) contributions to be made to Roth accounts, if the worker’s income exceeds $145,000 (indexed to inflation). That rule takes effect in 2026.
High earners age 50 or older would be required to contribute any additional savings over the annual 401(k) limit to a Roth account, meaning nearly all 401(k) plans would likely need to offer Roth accounts, Ismail said.

Workers can save up to $23,000 in a 401(k) for 2024. Those age 50 and older can save an extra $7,500 in catch-up contributions.
“Offering Roth as an option has become a best practice the last few years,” and due to the mandate for high earners, “we will continue to see Roth become commonplace,” said Hattie Greenan, PSCA’s research director.
Additionally, Secure 2.0 allows businesses to make an employer 401(k) contribution like a match as Roth savings. About 13% of employers said they would “definitely” add the option, and another 35% said they’re still considering it, according to PSCA data. More

Traders work at the New York Stock Exchange on Dec. 17, 2024.

Treasury yields rose Thursday morning as investors awaited new data on jobless claims.
The yield on the 10-year Treasury jumped 4 basis points 4.627%. The 2-year Treasury traded 1 basis point higher at 4.353%.

One basis point is equal to 0.01%. Yields move inversely to prices.

Jobless claims for the week ended Dec.21 are expected to total 225,000, according to an estimate from Dow Jones. Claims for the prior week totaled 220,000.
The benchmark 10-year rate has climbed more than 40 basis points this month. The bulk of the advance came after the Federal Reserve pared down rate-cut projections, indicating only two more interest rate cuts in 2025, down from the four potential cuts penciled in during September. More

A general view of the Federal Reserve Building in Washington, United States.
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The biggest banks are planning to sue the Federal Reserve over the annual bank stress tests, according to a person familiar with the matter. A lawsuit is expected this week and could come as soon as Tuesday morning, the person said.
The Fed’s stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends.

After the market close on Monday, the Federal Reserve announced in a statement that it is looking to make changes to the bank stress tests and will be seeking public comment on what it calls “significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.”
The Fed said it made the determination to change the tests because of “the evolving legal landscape,” pointing to changes in administrative laws in recent years. It didn’t outline any specific changes to the framework of the annual stress tests.
While the big banks will likely view the changes as a win, it may be too little too late.
Also, the changes may not go far enough to satisfy the banks’ concerns about onerous capital requirements. “These proposed changes are not designed to materially affect overall capital requirements, according to the Fed.
The CEO of BPI (Bank Policy Institute), Greg Baer, which represents big banks like JPMorgan, Citigroup and Goldman Sachs, welcomed the Fed announcement, saying in a statement “The Board’s announcement today is a first step towards transparency and accountability.”

However, Baer also hinted at further action: “We are reviewing it closely and considering additional options to ensure timely reforms that are both good law and good policy.”
Groups like the BPI and the American Bankers Association have raised concerns about the stress test process in the past, claiming that it is opaque, and has resulted in higher capital rules that hurt bank lending and economic growth.
In July, the groups accused the Fed of being in violation of the Administrative Procedure Act, because it didn’t seek public comment on its stress scenarios and kept supervisory models secret.
CNBC’s Hugh Son contributed to this report. More