Do Banks Set Interest Rates?

Banks are generally free to determine the interest rate they will pay for deposits and charge for loans, but they must take the competition into account, as well as the market levels for numerous interest rates and Fed policies.

Who actually sets the interest rates?

Interest Rates on Bank Reserves

The Fed can raise interest rates by increasing the interest rate it pays on required and excess reserves. 9 Banks won't lend money to each other for a lower interest rate than they are already receiving for their reserves. That sets a floor for the fed funds rate.

How do banks determine interest rates on deposits?

At a basic economic level, the interest rate set on savings account deposits is determined by the relationship between how much banks value receiving extra deposits and how much savers value the services of a savings account.