Interest Rates and How They’re Determined

Based in Lexington, South Carolina, Atul Makharia has twenty years of experience as a wealth adviser. As vice president of investments at Mantei & Associates, Atul Makharia advises clients through financial hurdles, such as fluctuating interest rates.

Interest is the percentage of the principal borrowed from a lender that is charged to the borrower. Banks set interest rates and apply them to the total unpaid amount of what was borrowed, whether through a loan or a credit card. Banks may charge a relatively high rate if there’s a higher risk that the amount may not be repaid on time.

Interest rates can be set as fixed rates or variable rates. Fixed rates will not change until the loan is paid off. Mortgages generally have fixed rates. Variable rates adjust over time.

Many factors influence interest rates. The first of these is the Federal Reserve, which is the country’s central bank. The “Fed,” as it's known, oversees the money supply and also attempts to control inflation, guides financial institutions, stabilizes the financial system, and serves as a bank. As part of these duties, it sets the fed funds rate, the interest rate that banks pay the Federal Reserve for the money they borrow. The fed funds rate thus dictates interest rates for other banks.

Demand for Treasury bills, notes, and bonds, which are investments set up by the U.S. Department of Treasury, can also drive interest rate changes. Higher demand for these instruments usually means that banks are willing to take more risk and agree to more loans. Finally, banks raise and lower interest rates based on business needs.

Headquartered in Anaheim, California, Centaurus Financial, Inc. is a national independent broker/dealer registered and licensed to offer securities, investment advisory services and insurance products. Centaurus Financial is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). Centaurus Financial is also registered as a broker/dealer and a Registered Investment Adviser with the Securities & Exchange Commission (SEC). For more information about Centaurus Financial, please visit www.centaurusfinancial.com.