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Fed Funds Rate – What is it?

John Thomas July 26, 2007 Tags: ,
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Fed Funds Rate – What is it?

Fed Funds Rate is the interest rate that Banks and other depository institutions charge each other when they lend money among each other.  The money is usually lent on an overnight basis. Federal law requires banks to keep a certain percentage of their customer’s money on “reserve” or right at hand, where the banks earn no interest on it. Consequently, banks try to stay as close to the reserve limit as possible without going under it, lending money back and forth to each other in order to maintain the proper reserve level.
Fed Funds Rate
Similar to the Federal Discount Rate, the Federal Funds Rate is used to control the supply of available money and hence, inflation and other interest rates. Raising this rate makes it more expensive to borrow and lowers the supply of available money, which increases short-term interest rates and helps keep inflation in check. Lowering the rate has the opposite effect, bringing short-term interest rates down.

Fed Funds Rate Summary:

Knowing the facts about the Fed Funds Rate and Discount Rate are important to being fiscally literate.  These indexes are not available for lending on consumer loans such as ARM Loans, but will influence what the Prime Rate will be.

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John R. Thomas  Certified Mortgage Planner NMLS# 38783

Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713

www.PRMIDelaware.com

About John Thomas

John Thomas and his team are long-time Delaware natives. They know the local real estate market as well as they know the loan products that help them serve it. Dedicated to helping first-time buyers; the John Thomas Team are experts on first-time buyer loan programs (FHA, VA, USDA) and conduct monthly first-time buyer seminars that have been attended by more than 3000 Delaware buyers.

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