when the Federal Reserve sets interest rates, why do banks, etc… have to raise their rates? If someone has great credit score, why can’t a bank offer them a way lower rate? why do they have to follow the fed rate?
doesn’t the bank have its own money to loan out? it does not borrow all of the moey from the fed?
The Federal Reserve Interest Rate is a short term overnight rate which the FED bank charge other bank to borrow funds at. Sometime you can get rate better than the FED rate if you borrow from a Credit Union or go some long term private channel. However since the FED rate is the cost of money for the banks in the short term, the bank usually tack on an additional surcharge to make a profit in making you a loan. So in a sense the FED rate is a measuring stick by which banks use to give you a loan. Ultimately the FED government set the amount of money in circulation so Uncle Sam decides our interest payment.
The federal rate is what is charged to the bank. for the bank to make any money, they have to pass it on.
References :
The Federal Reserve Interest Rate is a short term overnight rate which the FED bank charge other bank to borrow funds at. Sometime you can get rate better than the FED rate if you borrow from a Credit Union or go some long term private channel. However since the FED rate is the cost of money for the banks in the short term, the bank usually tack on an additional surcharge to make a profit in making you a loan. So in a sense the FED rate is a measuring stick by which banks use to give you a loan. Ultimately the FED government set the amount of money in circulation so Uncle Sam decides our interest payment.
References :
Dallas Area Financial Advisor
The bank can offer you a low rate if they want to. Some customers pay prime, other pay prime plus a certain amount.
References :