All About Interest Rates – Fed Fund Rate

All About Interest Rates – Fed Fund Rate

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It is anticipated that the US feds will be raising the Fed Interest rate at the end of their meeting this coming Wednesday. This would be a good time to learn a bit more about interest rates.

I  use Khan Academy Youtube videos to brush up on basic Finance Concepts.

What Are Interest Rates ?

  1. Great explanation here .  This has an introduction to simple interest and compound interest rates.
  2. Some examples to solidify simple and compound interest rates.
  3. The power of compounding – Important concept to understand
  4. Compounding Continuously – part 2 power of compounding

What is the US Fed Fund Rate ?

Fed Fund Rate is the target rate the Fed wants banks to lend to each other at. It controls this rate by controlling the money supply through open market transactions.

  1. Introduction to Fed Fund Rate
  2. Fed Fund Rate Part 2

The Federal Open Market Committee determines the US Fed Fund Rate.

You can find the current fed rate here .

Fed Discount Rate

Important to understand that the Fed Fund Rate is not the rate which the Federal Reserve lend money to banks ( deposit institutions ) at . The only time the Federal Reserve will lend money to banks is as a lender of last means and when they do they lend money at a rate that is slightly higher than the fed fund rate and this rate is called the fed discount rate.

Video explanation here .

 

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