Rate Changes FAQ
What is the federal funds rate?
The federal funds rate is set by the central bank, and it is the interest rate at which financial institutions borrow and lend to one another. This is not the rate consumers pay, but the Fed's move still affects consumer borrowing and saving rates, some of which are based on the prime rate.
What is the prime rate?
The prime rate is the best, lowest possible rate that financial institutions offer for consumer loans, especially short-term loans. Because it is based on the federal funds rate, the prime rate changes when the Fed raises or lowers rates. Federal funds rate changes affect the prime rate and variable loan rates offered by financial institutions nationwide, including BECU.
Why have loan rates been increasing recently?
The Fed's recent rate changes are impacting interest rates across the financial industry. Some reasons for the federal funds rate increases are:
- Strengthening job markets.
- Elevated inflation environment.
- Supply chain disruptions.
The Fed's rate increases can directly or indirectly affect interest rates on mortgages, consumer loans and credit cards.
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.
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.
What loan products are affected by changes to the prime rate?
The loan products with an Annual Percentage Rate (APR) based directly on the prime rate include:
- Home Equity Line of Credit (HELOC)
- Credit cards
- Business line of credit (secured and unsecured)
For these variable-rate loans, the interest rate changes when the prime rate changes.
Could the APR on my variable-rate BECU loan decrease even if the prime rate doesn't?
Yes, at BECU, we have a unique Loan Reprice Program that reviews your credit score improvement annually. If your credit score increases, we may reward you by reducing the interest rate on your qualifying loan.
If you have a HELOC, your monthly payment will change when the prime rate changes. If you are interested in learning about fixing the rate on your HELOC account, visit our Fixed-Rate Advance page.
What about rates on other types of loans?
Loan products such as personal, auto and RV are also impacted by Fed rate changes, but BECU relies more heavily on market conditions than prime to set rates. Most mortgage rates are based on market conditions as well as changes to the federal funds rate.
For these longer-term loans, the market considers expected future increases in rates. Because of this, the rates on these loans tend to change more quickly than variable-rate loans.
How are BECU 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.
- Returning profits to our members.
- Maintaining competitive offerings.
When the Fed changes rates, our team considers how the rate changes may influence these three factors.
Why might BECU loan rates increase or decrease more than other banks or credit unions?
Every financial institution has different factors to consider and methods they use to determine interest rates. For example, an institution's operating model (e.g., number of locations, services offered, online-only versus traditional branch locations, etc.) and the costs/revenue associated with that model must be factored into all interest rate determinations.
Other variables that are considered when setting rates can include:
- The need to balance income and expenses.
- Competitive financial environment (bank/credit union rates).
- Organizational objectives (return to member, growth).
- Timeline for acting upon market changes.
- Operational costs (e.g., size of the organization, branch network, salaries/benefits, ATMs, digital services, etc.).
Why might loan rates increase at a faster pace than deposit rates?
Every financial institution adjusts their loan and deposit rates according to their own schedule based on their determining factors and methods. BECU's decisions to change lending rates are based on our need to balance income with expenses, services provided and the needs of the institution for additional deposit volume.
Why should I stay with BECU if I can get a better rate someplace else?
BECU is committed to offering competitive interest rates and low fees while also ensuring that our products, services, and programs remain sustainable in the long term for the benefit of our membership. We are always evaluating and balancing these objectives to ensure maximum benefit to our individual members and the entire BECU membership.