How interest rates work & what happens if the fed raises them again next week:

posted by Brian Mudd - 

How interest rates work & what happens if the fed raises them again next week:

Bottom Line: There's a fair amount of confusion that comes into play with regard to how interest rates actually work. Here's a quick and easy guide. 

The banks/lenders that you borrow money from mostly commonly borrow that money themselves from the Federal Reserve. The "Federal Funds rate", is actually what those lenders have to pay the Federal Reserve to borrow that money. Currently the rate is .5%. If the fed raises the rate next week that means that it would cost your lenders .75% to borrow money. Whatever your lender charges you for the loan you receive is the markup based on the market factors for your risk profile, the type of loan and competition in the marketplace. For that reason, there's not a direct connection between the Federal Reserve raising rates and whatever you'll pay for (insert loan type here) but it stands to reason that if the cost of the loan for your lender rises, there's a chance that'll be passed along to you as well. 

Brian Mudd

Brian Mudd

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