Highest Interest Rate of Commercial Banks

Readers Question: In general what do commercial banks receive their higher interest rates from?

I’m afraid I don’t really understand this question. But, I will make these points.

Commercial banks will lend money at a higher rate than they pay to savers. This difference in interest rates enable them to make a profit. For example, if you went to a commercial bank such as Natwest, Halifax or HSBC, they may charge you 7-8% for a loan. These tend to be the highest interest rates commercial banks will charge. If, however, you borrowed on a credit card, the interest rate may be 16%.

Interest rates on savings can vary from practically 0% to 4-5%. For the highest interest rate, savers will probably have to commit to saving for a certain length of time. They may have to give a months notice before withdrawing the money.

Commercial banks, borrow from the Bank of England. This is because the Bank of England acts as lender of last resort. This interest rate is known as the Repo rate or ‘base rate’

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