Articles
PRIME VS. LIBOR RATES
PRIME RATE
As of today, the Prime rate is at 4.00%. This Federal Open Market Committee recently set the target for the Fed Funds Rate at 1%. The Prime rate is typically 3% above the Fed Funds Rate. The prime rate affects significant portion of the retail banking rates in the United States. This applies to various Home Equity Lines of Credit and Credit Cards.
BANK’S BORROWING RATE
The recent lowering of the Fed Funds rate, made little to no difference in the Bank’s borrowing costs. Bank’s typically borrow mid to long term, and significant part of their investments are in LIBOR since it offers 12 different rates (daily rate, 30 day rate, 60 day rate, …) versus only one rate for Fed Funds. The Fed Funds rate (bank’s overnight borrowing rate) makes up a SMALL portion of the bank’s overall borrowings.
RECENT RATE CONTROVERSY
LIBOR rates did not follow the recent declines in the Fed Funds Rate. This means that the bank’s cost of funds remained unchanged while the rates the bank’s were charging their customers dropped below the bank’s cost of supplying the money.
WHAT DOES THIS MEAN?
This mean that you can expect many banks and financial institutions will consider the change from our traditional Prime Rate as an index to LIBOR. You can track the LIBOR rates in various financial papers or websites daily.
PRIME RATE
As of today, the Prime rate is at 4.00%. This Federal Open Market Committee recently set the target for the Fed Funds Rate at 1%. The Prime rate is typically 3% above the Fed Funds Rate. The prime rate affects significant portion of the retail banking rates in the United States. This applies to various Home Equity Lines of Credit and Credit Cards.
BANK’S BORROWING RATE
The recent lowering of the Fed Funds rate, made little to no difference in the Bank’s borrowing costs. Bank’s typically borrow mid to long term, and significant part of their investments are in LIBOR since it offers 12 different rates (daily rate, 30 day rate, 60 day rate, …) versus only one rate for Fed Funds. The Fed Funds rate (bank’s overnight borrowing rate) makes up a SMALL portion of the bank’s overall borrowings.
RECENT RATE CONTROVERSY
LIBOR rates did not follow the recent declines in the Fed Funds Rate. This means that the bank’s cost of funds remained unchanged while the rates the bank’s were charging their customers dropped below the bank’s cost of supplying the money.
WHAT DOES THIS MEAN?
This mean that you can expect many banks and financial institutions will consider the change from our traditional Prime Rate as an index to LIBOR. You can track the LIBOR rates in various financial papers or websites daily.
