Whether you’re looking to take out a loan or shopping around for the best high-yield savings account, the interest rate is usually the single most important factor to consider.
Frequently asked questions
In the US, the Federal Reserve is responsible for setting interest rates. They each meet eight times a year to determine whether short-term interest rates should be decreased or increased. Banks and lenders respond by either lowering their rates or dropping them.
The Federal Reserve will typically raise interest rates when the economy and stock market are strong and decrease rates when the economy needs a boost.
During the COVID-19 pandemic, the Fed is keeping interest rates low to propel the economy. This has also led to a surge in home purchases as consumers take advantage of low-interest rates on mortgages.
If the market rebounds and unemployment drops, the Fed may decide to increase interest rates.
Whether or not an interest rate is seen as good depends on the current market rate. A few years ago, a 5% rate on a mortgage was a good deal. Now, it would be considered higher than the best interest rates available.
Each type of credit product has its own range of interest rates. Most credit cards have APRs between 15% and 18%, so a 10% APR would be considered good. At the same time, a 10% rate on an auto loan would be a high rate.