Don’t be surprised if you wake up tomorrow morning and your credit card limits have been severely slashed.  In the last week we have heard from people who had an American Express card with a $75,000 limit slashed to $15,000 – another from $25k to $3,500 and in some cases banks just closed the credit line overnight.

The bailout on Wall Street will not help you as a consumer.

Sure, it will help prevent the failures of institutions such as Bank of America or Merrill Lynch but when you need credit don’t expect a bailout of your own.

For those who like to use credit and have large items waiting to get paid which you were hoping to pay off over the next 12 months than its probably a good idea to charge your card today, not tomorrow.

Remember, banks and credit card companies have ZERO responsibility to you.  They can hide behind many reasons for reducing your limits and simply direct you to the credit bureaus or other third parties avoiding any solid answer on why.

Don’t get stuck in a jam – use your credit wisely but if you need to charge something probably not a good idea to wait in today’s credit environment

What is LIBOR ? …  If you visit libor.com you will tend to think LIBOR stands for the “Long Island Board of Realtors” but although the LIBOR index is closely related to New York and the real estate industry it’s certainly not the meaning of LIBOR as used on Wall Street.

LIBOR is an acronym for the “London Interbank Offered Rate”

This rate is comparable to the US Federal Funds rate but is used mainly to determine the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (also known as the interbank market)

Most US consumers only started hearing about the term LIBOR over the past 5-6 years as many of the now famous “adjustable rate” and “option arm” mortgages were tied to movements in the LIBOR - although in commercial markets the LIBOR has been widely used since its introduction to guide interest rates on commercial paper.

The LIBOR is an extremely interesting index as its value can determine how risk adverse banks are to lend funds to each other.  Over the past few months as the financial markets have been introduced to the global economic crisis in effect we have seen the LIBOR rates increased significantly therefore showing a visible gauge of bank’s adversity to lending to each other in current markets.

Many LIBOR rates exist such as the 1-Month, 6- Month and 1-Year LIBOR.  To the right you should see an automatic feed for the current LIBOR rate which is updated daily.

Wondering how much of your money is insured with banks?  The FDIC (Federal Deposit Insurance Corporation) has posteda financial tool  allowing consumers to estimate the insurance coverage associated with your bank accounts. The tool is called “EDIE the Estimator” and allows you to calculate the FDIC insurance coverage for each FDIC-insured account you have. Although this tool is only an estimate and by no means a certificate of coverage EDIE does allow a printable report for your bank accounts and can help determine whether or not your deposits may be within coverage limits.

EDIE the estimator can be found on the FDIC’s website here

The Prime Rate is one of the most important interest rates to global financial markets however many people who do not work on Wall Street confuse the prime rate with the federal funds rate. When the FED announces a rate change how does this impact the prime rate?

The committee responsible for changing interest rates is part of the Federal Reserve known as the FOMC - The Federal Open Market Committee.

The FOMC holds 8 regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.

When consumers hear the Federal Reserve – more specifically the FOMC and more commonly referred to as the “FED” - is meeting to determine a change in interest rates its common to believe they are taking about the prime rate due to the prime rate’s popularity in our daily financial products.

However, when you hear reference to the “prime rate” or the “us prime rate” it is most likely the reference is being made to the US Prime Rate as listed the Wall Street Journal® – also known as the WSJ prime rate. The federal funds rate is what changes when you hear chatter about the Federal Reserve changing interest rates and not the prime rate.

The prime rate posted by banks averages around 3 percent over the federal funds rate. So, when the Federal Reserve announces a rate change it’s really to the interest rate banks pay to loan from each other - a consumers rate will be around 3% higher.

Common Question – the Fed lowered interest rates but the prime rate DID NOT move.

Remember, as a guideline the prime rate is 3% greater than the federal funds rate but its up to the banks to change their posted rates and once 75% of banks introduce new rates then – and only then - will you see a change to the WSJ Prime Rate.

Probably the easiest definition for understand the movement of the Wall Street Journal’s prime rate is defined as ” When 23 out of 30 of the United States’ largest banks change their prime rate, the Wall Street Journal then prints a prime rate change ”

Although many interest rates such as the LIBOR index can change daily the prime rate moves less often and is one of the most stable financial values for the global economy.