Interest Rates

What are Interest Rates?

Interest rates are one of the major factors that affect the market and the currency of a country. If the Federal Reserves to decide to raise or lower rates in a state, a chain reaction will be started affecting various clusters in a bank. It’s like a domino effect that topples other rates, with the Federal Reserve being the first domino. If the Fed raises the interest rates, banks in turn will raise their prime. From car loans, mortgages, business loans and other consumer loans are directly affected by the Interest Rates. Although the feds directly affect bank rates if the feds decide to change its rates, Banks in turn can change their prime rates at will even without the Feds making the first move.

Common Terms:

  1. Federal Funds Rate - This is the interest rate that is controlled by the Federal Reserve
  2. Prime Rate - The interest that various banks give to their best customers which directly affects the other rates.
  3. Inflation – inflation takes place when you need more money to buy services or necessities, more money that you used to.

Why Lower the rates?

The Primary reason why some states choose lower interest rates is because some lowering rates gives out the primary benefit of the simulative effect on the economic activity. By reducing interest rates, the Feds can boost business spending on capital goods which in turn helps the economy in its performance and help promote household expenditures or consumer durable like cars.