What factors affect commercial banks' interest rates?
In the financial world, the interest rate is what an individual or institution pays for borrowed money. It can be an individual who pays the bank for a loan she issued, or a bank paying an individual who has money on a bank account. Interest rates of commercial banks for savings accounts and loans are influenced by factors such as the demand for the debtor on the loan market, inflation rate and credit value of individual debtors. Financial institutions give deposits an incentive to leave their money in these accounts, allowing the institution to use them for loans, and this is true of interest on money in these accounts. Interest rates of commercial banks for these accounts are generally higher if the bank needs more money for a loan. Banks will also pay higher interest rates for accounts, less likely that customers are downloading their money. That is why a deposit certificate from which depositors cannot withdraw money before a certain date without paying a fine, to pay higher interest rates than conventional savings accounts.
soilJsky are the main source of the bank's income. They are a product that the bank offers to customers. If there are a large number of debtors applying for loans, banks can charge higher interest rates. When the number of debtors applying for loans is reduced, banks usually charge lower interest rates to attract more customers.
Inflation is the main problem of interest rates of commercial banks within these higher or lower ranges. The inflation rate determines how much purchasing power and the actual value of each unit of currency loses each year. If the annual interest rate is 5%, then the same amount of money is 5% less valuable this year than last year. If the inflation rate exceeds the bank, which the bank charges for the loan, the bank could end in the loss of money in the transaction. For this reason, the banks estimate what the inflation rate will be at a time when the debtor repays the loan.
After taking into account the market demand for loansand planned inflation are interest rates of commercial banks based on the credit rank of an individual debtor. An individual with a good credit history is more likely to pay a loan than an individual with a poor. If the bank goes to borrow money an individual who is less likely to pay his loan, he will charge a higher interest rate than for someone who is more likely to pay off the loan.