Interesting Interest Rates

I have been thinking about our current, unusually low interest rate environment and what the future might bring. We know interest rates will have to go up, but we don’t know when or by how much. We know that the U.S. Treasury and the Federal Reserve Bank are trying to fuel a recovery after the slow motion crash of 2006-2009 with borrowed money. The Federal Reserve Bank is buying a lot of new U.S. Treasury debt at an artificially low rate as well as bad debt from private banks. We know that most American families move on average something like once every 5-7 years. Are the banks thinking about that when they write a 30 year mortgage? The important secured rates that directly affect the average consumer mortgage rates, car notes, and student loans all seem to be in the same ballpark.

What does it all mean?

Current Rates of Interest

0.25% Fed Funds Rate-The rate at which banks and other financial institutions lend money to each other on an overnight basis

0.75% Federal Discount Rate-The rate at which the Federal Reserve Bank will lend money to an eligible bank or financial institution; normally this would only be done in the relatively rare case when the bank has insufficient reserves on hand.

2.68% 10 Year Treasury Note Rate-Your rate of return when you buy a ten year treasury note from Uncle Sam.

3.25% WSJ Prime Rate-The rate at which at least 23 of the 30 largest banks in the country are willing to lend money to their most favored trustworthy customers.

3.86% Federal Stafford Student Loans for undergraduate studies

4.09% Typical rate for a 48 month new car loan as quoted by bankrate.com

4.31% 30 Year Fixed Mortgage Rate with no points-We all know about that one.

4.71% Typical rate for a 36 month used car loan as quoted by bankrate.com

5.41% Federal Stafford Student Loans for graduate studies

Note: Fixed interest rate student loans from private sources are currently running between 5.75% and 11.75% depending on the creditworthiness of the student and the cosigner.