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What do the bank rates depend on?

Posted by admin On Oct - 24 - 2017

Bank ratesOver two years past the banking world has been shaken by the global financial crisis. Typically, banks get the money from various sources, and then lend this money to their customers at a higher rate than they paid for it. Is how a bank makes money.

Much of the bank’s funds comes from their deposit accounts. Transaction accounts, time deposits and other investment accounts take money from the Reserve Bank, and they have account to funds from other banks, both at home and around the world.

Generally, the cost of money to the Reserve Bank determines to what extent a bank will charge its customers. This is because, under normal circumstances, the Reserve Bank sets the interest rate after considering the state of the global economy and using its power to set interest rates as a method for control things like the growth of the economy and domestic demand for credit. This rate has averaged acceptable for banks to use as reference.

As the global financial crisis began to unfold, the usual landmarks flew out the window. No longer could the banks use the rate of the Reserve Bank that their average acceptable. Instead, they were forced to watch when they were under internal costs to borrow money from other banks in the world. This swap international, as it is called, has increased dramatically, making this source of financing virtually untenable.

In some years we can expect a return to the good old days. Until then, banks will continue to alter the rate of interest based on their internal costs and not simply rely on the price of money, which the Reserve Bank settles.

There was much criticism in the press in particular where banks have raised interest rates by amounts higher than the Reserve bank has set aside.

This is a short explanation of why this happened, and it is as good as any reason to be cautious when choosing which bank can give you the best deal on your mortgage.

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