What's the big deal on interest rates anyway?

I have been thinking about interest rates and how they play a key role in the money that flows either into or out of your wallet and sometimes both. One of the things that come to mind is the FOMC (Federal Open Market Committee). The FOMC meets often to decide how to deal with the short term interest rates. When the media is talking about the Fed cutting the interest rates they are referring to the FOMC’s decision to lower the federal funds rate. This rate is what banks use as a benchmark for the rate they will charge when lending other banks reserve funds overnight. The Federal Reserve is who monitors and regulates banking institutions and upholds the stability of the financial system. When they lower the rate the purpose is to stimulate the economy by encouraging consumers to borrow and invest. The Federal Reserve plays a major role in how interest rates affect different short term investments such as money markets and other products like bank loans.
The rate banks use to determine what to charge their most credit worthy customers is called the prime rate (which is 2% above the federal fund rate). A well established company could borrow at a prime rate of 6% where as a less established company could borrow at 8%. This is why your credit almost always is the determining factor when it comes to the bottom line regarding how high the interest rate will be on the funds you borrow.
The other way interest rates affect your wallet is through the various loans we purchase for example a credit card or bank loan like an auto, home loan or line of credit. You can purchase a loan through a credit union and pay a large difference when it comes to your interest rate. The rate could be pretty low perhaps less than 5.00% if you take a secured loan which means you have to put up collateral. Let’s say you wanted a $2,000 loan. You would need to make sure you have the available $2,000 in a savings account at the institution to use as collateral for the loan. The financial institution will hold the funds and the money becomes more available to you as payments are made. This can help you rebuild or establish credit and allow you to use the money for whatever the loan is needed for. Another option is looking at a secured credit card if you desire to borrow a lower amount for example just a few hundred dollars. The big difference here is the credit card interest rate could be well over 10.00%. You still have to fork out the $300 dollars or more to secure the credit the institution would give you however you could wind up paying out more money in the long run but can also rebuild or establish credit.
Keep these things in mind when you are deciding to either purchase that cute $300 handbag, get that sexy $150+ pair of boots or stash the money away in your savings. Remember your credit worthiness and spending habits mean a great deal to you and the financial institution you choose to borrow from. This really does affect your goals in the long run.