Credit

card interest rates—not because they change but because they can be
very costly, as much as 25 percent above “market” interest rates. That’s an
expensive price premium.

SAVINGS RATES

Certificate of Deposit (CD) rates, an important form of savings

Money market rates (see #76 Money Market Fund)

Why You Should Care

Interest rates affect all of us directly or indirectly. Directly, they determine
how much we pay to borrow money for homes, cars, education, and so forth, and
they determine how much income we receive on savings—which has been a big
issue for many lately who depend on interest income, especially to fund
retirement. Indirectly, interest rates and changes in interest rates can give strong
clues to which way the economy is going, and which way policymakers want it
to go.

22. PRIME RATE

Not too many years ago, news headlines featured any change in the so-called
prime rate. Whenever it changed in one direction or the other, it was considered
news. Although it has declined in importance, the prime rate is still used as a
benchmark or reference interest rate by banks, economists, and others in the
business world.

What You Should Know

The prime rate, or “prime lending rate,” is, in theory, the interest rate banks
charged their best, lowest-risk customers. The loans in question were largely
unsecured and short term, so the prime rate was a representation of how much
the credit was really worth in the marketplace. These days the prime rate is more
likely tied to Treasury security rates or to “average cost of funds” figures