How Banks Think About Rate

When you begin shopping around for a savings account, you may notice each bank – and each type of account – can offer a different interest rate. While banks independently determine the interest rate they offer for deposits, most banks adhere to the same principles when determining the rates they offer.

In this article, we answer common questions regarding interest rates. Then, we explore three key variables that tend to determine banks’ interest rates, including:

An interest rate has two different meanings, depending on the context.

If you are getting a loan, interest rate is defined as the rate you pay to your lender as you pay back the money you owe.

If you have money in a savings account, it’s the rate the bank pays you to maintain your money with them.

Both APY and interest rate are expressed as percentages, but what makes them different is compound interest.

APY reflects compound interest, which means it represents a broader measure of what you may earn. APY – or compound interest – shows how you’ll earn additional interest on the interest you’ve earned, not just on the original balance.

An interest rate is the rate at which interest is earned on the original balance, and it excludes earnings on the interest you’ll compound over time.

The beauty of compounding interest is that it grows your money the longer you keep your funds in a high-yield savings account like Forbright Bank Growth Savings.

Curious to know how much you could save with Forbright Bank’s high-yield savings account? Use our Savings Calculator located on the Growth Savings page to see how much you could save over time.

Most banks generate revenue through the interest they charge on the money they lend out to companies, projects, and individuals.

A portion of that revenue goes back to customers in the form of interest payments on your deposits, and a portion typically gets reinvested in the bank to make more loans or operate the bank.

Banks also can make money from fees they charge for the services they provide, like credit card fees or investment management fees.

The Forbright Bank Growth Savings account charges no fees, and what makes Forbright Bank unique is our focus on lending money to projects and companies that make a sustainable and responsible impact on the world.

Yes, the Federal Deposit Insurance Corporation, or the FDIC, provides deposit insurance to protect your money. Forbright Bank is a member of the FDIC, and all deposits are automatically protected up to the established limit.

To learn more about FDIC membership and how it protects deposits, visit the FDIC website.

The federal funds rate is the rate the Federal Reserve sets for banks to loan money to each other. More than 5,000 depository institutions hold funds at the Fed, so a change in the rate – or even the expectation of a change – can have a swift cascading effect on the rest of the market.

A lower federal funds rate usually means lower interest rates outside the Fed, which lowers the cost of borrowing across the economy. On the other hand, it also lowers the interest rate you’d likely get through your savings account.

A higher rate means you can expect the opposite: better returns on your savings but pricier borrowing costs. This means higher monthly payments on a new mortgage or car loan.

The Fed’s 12-member Federal Open Market Committee (FOMC) meets eight times a year to review economic conditions and determine whether to raise, lower, or maintain the funds rate.

While the funds rate is a major factor influencing interest rates on savings products, inflation rates, competitive offerings, market timing, and the broader supply and demand of credit can all influence the interest rates at your bank.

As a mission-driven bank, Forbright Bank is committed to financially responsible and sustainable solutions for our customers.

Our team at Forbright Bank pays close attention to different variables, including key developments in the economy, the current and expected federal funds rate, and financing projects that help build a more resilient future. These considerations help us determine the right rate to help you save toward your financial goals and provide a better return for you.

Learn more about our financially responsible and sustainable approach to banking.

This article is for general information and education only.