Interest rates are a vital tool of the monetary policy and are used to control variables like investment, inflation, and unemployment. The Federal Reserve (Fed for short) meets frequently to decide adjustments in interest rates. Most financial institutions, federal agencies and market indices regularly publish the current interest rates.
Websites such as Bankrate.com conduct a weekly national survey of large banks. These surveys track the current interest rates for the most important types of loans including the 30-year fixed rate mortgage, 15-year fixed rate mortgage, 5-year adjustable rate mortgage, 30-year fixed jumbo mortgage, 5-year jumbo adjustable rate mortgage, home equity loans, used and new car loans, certificates of deposit and money market instruments, credit cards and bonds.
Most banks and financial institutions decide their current interest rates based on the federal funds rate. Banks hold reserves at the Fed and the interest they charge each other to provide overnight loans of these federal funds is called the federal funds rate. The Fed implements monetary policy mainly by targeting the federal funds rate.
The Federal Reserve is also directly responsible for setting the discount rate, which is the interest rate that banks pay the Fed to borrow directly from it. The Fed usually adjusts the discount rate by 0.25 or 0.5 percent at a time if need be. Both the federal funds rate and the discount rate influence the prime rate, which is usually set about 3 percentage points higher than the federal funds rate. The prime rate is the interest rate that most banks price their loans at for their most creditworthy customers.
It?s important to keep track of current interest rates as they are what you will be charged for a loan. With this knowledge, you can take advantage when rate cuts are announced by the Fed.