All the interest rates that everyone needs to know
When it comes to saving, investing, consuming and burrowing of money, the most important component of all is something called interest rate.
Let us look at the following short definitions of 7 major interest rates that each one of need to know unless you live under a rock.
Starting with the one that is most common to us all,
1. Certificate of deposit rate
This is basically the rate of return earned on at least 12 months of time deposits with major financial institutions.
Since the interest rate is not much, you better be sure that it is completely riskless by checking that they are FDIC insured.
If not, you will be better off investing in ponzi schemes.
2. Mortgage rate
Unless you are somewhere along the lines of Li Ka-Shing, Bill Gates and Warren Buffet, you will have to burrow money to pay for housing purchases that are meant for primary residences.
Don’t expect to return $200 000 20 years later when you burrow the same amount today. There is a cost of burrowing, like credit card and mortgage rate is the interest rate being paid on the amount burrowed to buy a new house.
3. T-bill rate
This is the return received when buy into short term of 13 weeks of U.S. government debt obligations.
As a result, any investments that are expected to pay the same or even worse, less than this financial instrument, a rational person should pass them off as T-bill is generally considered risk free.
4. Treasury bond rate
This is similar to T-bill, but of a longer duration, around 20 years. If you believe that investing in stocks is risky, or don’t have the emotional guts to take risks from investing in stocks, then this investment is for you.
But if you are investing in corporate bonds, even well known investment grades blue chips, then the rate of return from corporate bonds must be higher than this rate.
If not, you will be better off investing in Treasury bond.
5. Corporate bond rate
This is the interest rate that large well known U.S. corporations charges for burrowing money from public.
Any less well known and smaller corporations bonds should give a higher rate of return than this. If not, you will be better off investing in bonds of larger and well known corporations like General Electric.
6. Discount rate
The rate that Central Federal bank charges financial institutions, as the figures for his rate will affect our economy and livelihood; it is good to know about what this rate is.
Even though you don’t know how this discount rate will affect your livelihood.
7. Prime rate
Large corporations also burrow money from banks. This is the cost of burrowing for them.
Do not really concern us average Joe on the street unless you are the CEO of those large corporations.
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