How are rates set?
The Federal Reserve (the Fed) is the central banking system of the United States. The Fed sets the interest rate that financial institutions (banks and credit unions) charge each other to borrow money. Financial institutions use the federal interest rate to set the rates they offer their customers. The interest rate on a short-term loan or high-yield cash account will be impacted by the federal interest rate.
Are mortgage rates affected by this, too?
Demand for U.S. Treasury notes and bonds, not the federal interest rate, drives the rates on long-term loans, like fixed-rate mortgages and student loans. Interest rates on bonds are typically lower when the demand is high and higher when the demand is low. The best time to borrow money is when interest rates are low. This is especially true for a fixed-rate loan that locks in your interest rate.
Why is all of this important?
One way BECU earns income is from interest we receive on loans versus what is paid out to members who have deposits in interest-bearing accounts. The ratio of money we receive to money we pay out is called the spread – which directly impacts our income.
Because we don't charge many fees, we have to be diligent about our rates to ensure income is at a sustainable level to pay for the operations of the credit union.
How are BECU deposit account rates set?
We have a team who actively monitors and sets our deposit and loan rates. They consider many factors, including maintaining a sustainable balance of costs, return to our members and competitive offerings. When the Fed changes rates, our team must consider how the rate changes may influence these three factors.