It's important to know how much interest you earn on your savings.
This helps you to project where your financial standing is in the
future. This is often necessary, as in saving for retirement. It's a
good idea to understand how financial institutions determine their
interest rates.
There are so many factors that affect interest
rates. The Federal Reserve lowers and raises the short-term interest
rates in order to stabilize our nation's financial system. Economic ups
and downs are monitored by the Fed on a routine basis.
Rates are
raised during good times, called economic expansions. This helps keep
the economy from growing too fast and suffering from inflation.
Inflation occurs when prices rise on goods and services. The idea
behind raising the rates is that lending becomes more expensive.
Businesses and individuals will therefore spend less and save more.
When
the economy is slowing down, or contracting, the Fed lowers short-term
rates. Lower rates usually result in more borrowing. The economy is
boosted by an increase in spending, which helps to prevent recession.
Recessions occur when consumers stop spending and save their money.
Businesses find that they are no longer able afford to stay in
business. Employment rates will drop also.
The short-term rates are the rates that
banks charge each other to borrow money. When a bank can borrow money
at a lower rate, they will lend money at a lower rate. And the same for
higher rates. Cuts are raises are passed on to businesses and consumers.
There
are other factors that influence interest rates. Crisis and disasters
that affect oil-production, even overseas, can have major economic
impacts. Long-term rates aren't as easily influenced as are short-term
rates, but eventually the impact is felt by both.
What is good
for the saver isn't good for the borrower. When rates are high, you
will earn a lot on your savings, but if you need to borrow, you will
pay more. When rates are low, it's the perfect time to borrow, but your
savings will not see high growth.
Martin Lukac, represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com,
a finance web-company specializing in real estate/mortgage market. We
specialize in daily updates, rate predictions, mortgage rates and more.
Find low home loan mortgage interest rates from hundreds of mortgage
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