Interest (in financial terms) is the fiscal compensation given by a borrower of assets. Typically, it is a price paid for the use of borrowed money or money gained by funds deposited. Interest rates are the rates usually given as percentages at which interest is paid, typically offered by banks to customers. This article examines the factors which affect interest rates, particularly in the US.
Why interest rates are given and how they were affected by the recession
Why interest rates are given
Interest rates are given by banks as a ‘reward’ for the customers depositing their money in that account because, in connection with many other users’ money, banks use this. They have complicated, technical legal laws which mean that they can, to an extent, play with the money how they wish. Thus, they gain money themselves through investment through bankers investing this money. At least, that it is theory. To generalise, this is somewhat the cause of the recession. Bankers gambling with somewhat nebulous money which essentially was not there. The impact of the recession on US interest rates The recession had a significant impact on interest rates in the US. It is hard to describe briefly, because the recession threw treasuries, bond quotes, bond pricing, bond yields and much more into chaos, but generally speaking, interest rates fell. This is because the banks had less money to offer clients and the federal reserve generally kept inflation rates and interest rates low to try and stimulate economic activity.
How they differ for different people
Interest rates for the typical customer
Typically, interest rates for standard customers are generally considered less preferable than those for richer customers. Obviously, there are many different financial circumstances to be considered, but making a broad generalisation, rates of interest on current accounts are typically less than 1% annually, often at around 0.5%.
Saving accounts offer
Many banks in the US (and elsewhere), however, offer saving accounts available to the majority of customers with more preferable rates, typically in the range of 0.5% to 2.5%. Interest rates for the richer customer It is nigh-on impossible to give general interest rates for richer customers, because the bank is particular about their money due to the tendency of rich people to have nuanced financial situations. Nearly all banks have individual meetings with rich customers to discuss arrangements. That being, as general guidelines, the rates for Abbey (also known as Santander) for those who have between £50,000 and £5 million to their name are 1.5% to 2%, and Lloyds 2.6% for those with over £500,000.