Banking Interest Rates
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Banking interest rates are the interest rates paid or charged by a bank for borrowing funds from others or lending to individuals, companies and other banks. These rates are based on the base rate charged by the country’s central bank on loans and advances made to the banking system to control the money supply in the economy.[br]
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Calculation of Banking Interest Rates
Banking interest rates are set in accordance with the central bank’s norms and modified as and when the basic bank rate is raised or reduced. The central bank of a country generally monitors the bank rates on a quarterly basis and announces changes in them, keeping in mind the inflation level and the overall economic scenario. A change in the bank rate causes a ripple effect and leads to changes in the banking interest rates on various types of loans, mortgages and deposit facilities offered by individual banks and financial institutions.
Types of Banking Interest Rates
The most important amongst all banking interest rates is the basic bank rate or the prime lending rate set by the central bank, keeping in mind the general economic conditions and the inflation scenario. Then come the banking rates on various instruments and facilities offered by banks and financial institutions. These include the savings account banking interest rates, certificates of deposit bank rates and money market funds bank rate.
The savings account banking rates are quite modest and determined in accordance with the overall economic situation. But the banking rates on certificate of deposit accounts are a bit higher and based on the duration and the quantum of funds deposited.
Banking interest rates on deposits of longer duration are generally higher than that for the shorter duration deposits, in view of the greater risk involved in the former.
The prime lending rate is also the basis for deciding the banking interest rates on various loan products offered by the banks.[br]
Information about Banking Interest Rates
Information about the prevailing banking interest rates on various types of accounts and funding options can be gathered from a bank or financial institution’s website. In addition, several websites provide a comparative picture of the bank deposit rates offered by various banks and the interest rates charged on various funding facilities, such as credit cards or loans.
