Banks raise rates when they want to gather money. If they need to get deposits in the door, a high rate on savings accounts will attract money. If, on the other hand, they don’t need cash, they can keep rates lower, according to http://www.thebalance.com.
Banks have different approaches to earning money. Some take deposits and lend them out, while others take a more varied approach (earning revenue and fees from other services like credit cards and ancillary business).
Depending on the economy, possibly the local economy for small banks and credit unions, you will find that the borrowing and lending banks change rates as their customers’ needs change.
Organisational structure is also important. Some banks have shareholders demanding that the bank grow (and/or share income with the shareholders), and it is hard for those banks to pay high rates to depositors. However, some banks are able to keep only what they need to pay the bills, and share the rest of the revenue (from loans, ATM fees, etc.) with account holders. Small banks and credit unions are most likely to fit the latter model.
Getting better interest rates
What can you do to get the best rates? If rates in general are low, you can’t do much to change the economy, but you can search out rates at the higher end of the range of rates available.
First, figure out whether or not it is worth your time to chase higher bank interest rates. Most people do not need the highest rate out there (or even a top-ten-percentile rate).
Do the math and find out how much you will earn if you have to switch banks, and remember that your money may be “idle” – not earning interest – while you move it around.
Run some numbers with a compound interest calculator. If you need to earn more, shop around.
Types of bank loans
Loan types vary because each loan has a specific intended use. They can vary by length of time, by how interest rates are calculated, by when payments are due and by a number of other variables, according to www.debt.org.
Mortgages: Mortgages are loans distributed by banks to allow customers to buy homes that they can’t pay for upfront. A mortgage is tied to your home, meaning you risk foreclosure if you fall behind on payments. Mortgages have among the lowest interest rates of all loans.
Auto loans: Like mortgages, auto loans are tied to your property. They can help you afford a vehicle, but you risk losing the car if you miss payments. This type of loan may be distributed by a bank or by the car dealership directly, but you should understand that while loans from the dealership may be more convenient, they often carry higher interest rates and ultimately cost more overall.
Personal loans: Personal loans can be used for any personal expense and don’t have a designated purpose. This makes them an attractive option for people with outstanding debts, such as credit card debt, who want to reduce their interest rates by transferring balances. Like other loans, personal loan terms depend on your credit history.
Small business loans: Small business loans are granted to entrepreneurs and aspiring entrepreneurs to help them start or expand a business.
Payday loans: Payday loans are short-term, high-interest loans designed to bridge the gap from one paycheque to the next, used predominantly by repeat borrowers living paycheque to paycheque.
Borrowing from retirement and life insurance: Those with retirement funds or life insurance plans may be eligible to borrow from their accounts. This option has the benefit that you are borrowing from yourself, making repayment much easier and less stressful. However, in some cases, failing to repay such a loan can result in severe tax consequences