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How the Fed Funds rate affects investing
The definition of the Fed funds rate is that it is the percentage rate that the main bank charges other banks for overnight loans. These are the overnight loans that are needed for any bank to keep that banks minimum reserve balance. When the Fed funds rate is low so is the rate that the other banks are being charged for the money they need to keep on hand. There are then many ways that the Fed funds rate can affects your investing from personal loans to any stock or other investments you might make. If it is harder for the banks to get their overnight loans then it will be just as hard for you to get your loans.
When banks are being charged a higher rate for the reserves that they are mandated to have then those banks will be less willing to give out loans. When the bank does give out loans it is at a higher rate of interest. The banks will charge you more of an interest then the interest rate that they were charged in order to make back some of the interest that they had to pay out. These loans can be personal loans you may need, a home mortgage loan you may be looking at or an auto loan. When the Fed Funds rate is high your percentage rate will also be high. This percentage rate can affect your investing because you may not be able to invest as much as you would like to in a business, a home or even an auto because the percentage rate may be too high or too risky. The Fed Funds rate affects the way you invest your money by also affecting the stock markets. Stocks are a popular form of investment for both a long term and short term goal. There are thousands of stocks exchanged daily either domestically here in the United States or globally throughout the world. When the Fed Funds rate is low there is more trading on the stock exchange. People buy more stock when percentages are low. This helps stimulate the economy. When the Fed Funds rate is high people are more likely to sell so that they get a return on the high percentage rates. This is almost the opposite of other investment loans like mortgages or auto loans. How the Fed Funds rate affects investing will depend on what type of investing you are doing. If you are trying to invest in a business, home or auto it may be harder to get a loan if the Fed Funds rate are high. When there is a higher Fed Funds rate you will also be paying a higher interest rate for those business, home or auto loans. If you are buying stock a low Fed Funds rate will help you buy the stock and hopefully sell it at a higher Fed Funds rate for a better return on your money. How the Fed Funds rate affects investing can be good or bad depending on what you are looking at for investments.
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