The interest rate imposed by banks is their best customers

If you pay attention to the financial news, you may have heard the term “main price” and wondered what it means. You may have confused it with the interest rate on federal funds or your loan interest rate.

Although this is not the same. The interest rate is that banks are the interest rate receives their best customers. It depends on the rate of federal funds and affects interest rates on loans, mortgages and more.

Learn more about what the peak rate is, where it comes, and how it affects your wallet.

The basic interest rate, also known as Wall Street Journal Prime Rate or US Prime Rate, is the interest rate in which banks lend money to their “best” customers – or more worthy of credit -.

Individual banks set their main prices, and Wall Street Journal publishes a total rate At least 70 % of the 10 largest banks in the country. The PRIME rate at Wall Street Journal provides a standard that banks can use to determine prices on various loan products. Currently, the main rate is 7.50 %.

You can think about the main rate as a reference point for consumer loan interest rates. For example, the high interest rates on high credit card, adjustable mortgage rates, and personal loan rates. However, banks use additional factors, including borrower credit date, to determine individual interest rates. In general, the better your balance, the lower your loan interest rate – the closer your price is to the initial price.

The main rate is not fixed. In response to the rate of federal funds changes. The PRIME rate is usually about 3 degrees Celsius higher than the federal funds. For example, if the rate of federal funds is 2.50 %, the initial rate will be about 5.50 %. Inflation and other economic factors can also affect the rate of peak.

Read more: Federal funds rate: What it is and how it affects you

The basic rate over time fluctuates in response to the various factors that affect the economy, including wars, stagnation, and global events. Here is a snapshot of the main rate over the past five years:

While the past five years have witnessed an increase in the peak rate, which ultimately reached 8.50 %, this rate is not approaching the highest historical level. In December 1980, the peak peak rate at the highest level ever reached 21.50 % in response to the outbreak of inflation. This was followed by several years of the peak rate of two numbers, which finally decreased to less than 10 % in 1985.

Since banks use the main rate as a reference point to determine interest rates, the main rate directly affects a variety of loan interest rates, including personal loans, home stock products, mortgages, credit cards and more.

Some loans – often personal loans and mortgages – have fixed prices, which means that interest rates do not change throughout the loan period. Others, like credit cards, have variable prices that can Change at any time.

If you have an approved variable loan, such as the HELOC credit line or credit card, the increase in the interest rate can lead to a stumbling block in your interest rate-next, a higher monthly payment. If you have a fixed loan of the rate, the current interest rate change or current payments will not affect. But it will affect the rates of any new loans with a fixed rate you get.

In general, the high rate rate leads to high interest rates, making it more expensive for borrowing. Individual credit history also affects the interest rates you qualify for, but the main interest rate is a starting point.

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