Are interest rates adjusted by the central bank the same as that of commercial banks?
February 4th, 2012 | 
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Question by Steven TJ: Are interest rates adjusted by the central bank the same as that of commercial banks?
When central banks (like the Fed) adjust interest rates, are these the same rates used by Commercial Banks? Do Commercial Banks give the same interest rates as the Central Bank?
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Answer by mindcrime828
The rate that is adjusted by the central bank, such as the Federal Reserve, is the rate used in the transfer of money between commercial banks and that central bank. When it is adjusted, commercial banks will adjust their rates accordingly. For example, a commercial bank may lend funds at 5% over the prime rate (rate set by the central bank). If the central bank raises the prime rate from lets say 2.5% to 3%, then the commercial bank would raise its interest rate from 7.5% to 8% so that they still get the same percentage of interest on money lended to its customers. Thats how banks make profits, from fees and interest.
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First of all, the notion that the Fed manages (or “adjusts”) interest rates at all is a bit of a misnomer. The Fed simply follows the bond market, as do commercial banks (banks just tack on fractions of a percent to skim a profit off the top). The chart in the following article proves it.