Bank Rates Explained
The Diversity of Bank Rates
Banks have become more specialized in their rates over the years. In the past, the bank mainly published three types of rates; interest rates for savings, lending rates for loans on all but homes, and mortgage interest rates.
Today they publish different savings interest rates for standard savings accounts, money market accounts, CDs, IRAs, and money market IRAs. A bank lending rate may fall into categories such as auto loans, RV loans, boat loans, debt consolidation, small business loans, and lines of credit. Each has its own rate. A bank mortgage rate varies with the length of time the mortgage lasts.
Standard Savings Rates Explained
Savings accounts are accounts that usually carry no checking privileges, although a money market account may include that as a limited privilege. The bank interest rate on these types of accounts is usually listed as an annual rate. The interest may be calculated on a yearly, monthly, or daily balance. A bank interest rate for this type of account is usually fairly low, but the money is insured by the FDIC. CDs are instruments that can carry a pre-determined rate or a variable rate. The CD is issued for a set time, such as a year. Cashing out a CD before it matures usually carries a penalty. The interest is usually added to the balance and is recoverable when the CD matures.
The Bank Lending Rate on Autos and Other Vehicles
A bank lending rate is the rate a bank charges a borrower for a loan on an auto and usually depends on the age of the auto. A new auto carries the lowest bank interest rate. There are bank lending rates quoted for other vehicles such as RVs and boats, usually for shorter periods of time. They carry rates specific to the vehicle and year. Some financial institutions will not lend money for any vehicle older than 10 years.
Bank Mortgage Rates
If a borrower wishes to buy a home, research will tell them that the bank mortgage rate they will be charged depends on the length of time they wish to have to pay off that mortgage. A bank mortgage rate is usually quoted in a 15-year or 30-year time frame. If a borrower enters the anticipated loan amount into a mortgage calculator website and sets the time frame to 30 years, the payment will be lower, but the amount of interest paid over the life of the loan will be much higher than the 15-year time frame.
There are different rates set by financial institutions for buying a home and for refinancing a mortgage or taking out a home equity loan. There is another product that many banks offer called a bridge loan. If a homeowner puts the home on the market to be sold, and then purchases another home before the first home is sold, banks offer what is known as a bridge loan. This is a loan to cover the gap between the mortgage on the first home and the mortgage on the secon one. The interest charged on this is usually higher.
What Is APR?
Annual Percentage Rate is a percentage intended to allow the borrower to compare rates with different initial charges and it covers the life of the loan. A borrower may take out a loan with the published rate of four percent, but when all the charges are added, the APR may be six percent. On a mortgage, few people today live in a house long enough to pay out the mortgage, but the APR is important for comparison purposes.