Figure Out Bank Interest Rates
Whether you are putting money away for a rainy day or borrowing money to buy a home or car, it is important to understand how interest rates work. If you are saving money, you want to get the highest interest rate you can since that puts more money in your pocket. On the other hand, if you need to borrow money, you want to keep your interest rate low since a lower interest rate means lower monthly payments and less money paid out in the long run.
Instructions
1. Purchase a financial newspaper, such as the Wall Street Journal, Barrons or Investors Business Daily. Each publication has a section that lists interest rates on various financial instruments, such as Treasury bills and notes. Look for information on key interest rates, such as the Federal Reserve funds rate. These rates are used to finance everything, from car loans and mortgages to credit cards and money market funds.
2. Examine a copy of your most recent credit card statement or disclosure statement and review the section that lists interest rates. If the interest rate on your credit card is variable, it is tied to the Federal Reserve funds rate. For instance, your credit card interest rate might be listed as Fed rate + 10, which means that the interest rate on the card will be 10 percent higher than the current rate for Federal Reserve loans. Therefore, if the current Fed rate is 3.5 percent, your credit card interest rate would be 13.5 percent.
3. Review the interest rates on any savings accounts and money market funds you own. The rates on these instruments typically vary, with some banks offering high promotional rates to entice new customers. If you have money to set aside in an emergency fund, it is a good idea to check the local newspapers for interest rate specials--you can maximize your savings and put even more money away.
4. Pick up a rate sheet from your bank and review how various loans are priced. For instance, the interest rate typically charged on loans for new cars is at least a few percentage points less than the rate charged on used cars.
5. Compare the interest rates offered on loans and savings instruments across several different banks and credit unions. Comparing interest rates is essential, whether you are a saver or a borrower.
Tags: interest rate, credit card, interest rates, Federal Reserve, your credit, your credit card