The prime rate may not change for years or may change several times within one year, especially in economically turbulent times. “The best and most creditworthy customers are usually corporate clients.” Banks generally use a formula of federal funds rate + 3 to determine the prime rate it charges its best customers, primarily large corporations that borrow and repay loans on a more or less constant basis.
While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. One of the most used prime rates is the one that The Wall Street Journal publishes daily. As noted above, banks generally use fed funds + 3 to determine the prime rate. This prime rate is derived from the Federal Funds effective rate, which is the interest rates at which banks lend money to each other. The Federal Reserve provides guidance on what the Fed Funds rate should be set at, known as the “Federal Funds target rate”. Banks usually follow suit, and you have the “Fed Funds effective rate”.
(1930 to Present – for specific change dates see here)
“The prime rate is used to set the rates for loans and credit card balances, plus a risk factor increase,” Niedermeyer says. “Credit cards would be the prime rate plus 10% to 15% as they are considered risky for some borrowers.” Here’s how the current prime rate impacts personal loans, mortgage loans, and everyday debt.
View the current US Prime Rate and explore historical trends with our interactive chart covering Prime Rates from 1955 to 2025. Please review the copyright information in the series notes before sharing. Official websites use .govA .gov website belongs to an official government organization in the United States.
- When you see a reference to “the prime rate,” it usually reflects an average rate across financial institutions.
- Over the next few decades, the prime rate fluctuated widely, reflecting the ups and downs of the economy and largely mirroring other benchmark interest rates.
- Rate posted by a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks.
- Every line of credit or loan has an interest rate in the form of a quoted APR (annual percentage rate), that you pay.
- Banks usually follow suit, and you have the “Fed Funds effective rate”.
Any unsecured loan (like a credit card) is charged interest at a higher rate than a secured loan, such as an auto loan or a mortgage. All of them determine the present APR that you pay on that loan by taking a fixed rate (as specified in your contract) and adding the prime rate to it. From there, prime rate is calculated by adding ~3% to the fed funds rate. However, some market sectors, like the financial industry, often benefit from high interest rates. Financial institutions like banks, brokerages, and insurance companies have increased cash flow since borrowers are charged more.
A snapshot of the prime rate can be found on the Federal Reserve’s website. That prime rate is the starting point for all other interest rates, which are set at the prime rate plus an additional percentage. The Federal Reserve lowered the rate dramatically at that point of time due to the credit crisis preventing the flow of credit in the economy. The Fed had kept their target rate at that historically low level, in order to keep credit cheap, with the hopes that it would stimulate the economy. Fluctuations in the prime rate can reflect how tough or relaxed lenders’ financing standards and requirements are.
The Prime Rate decreased to 7.00% effective October 30, 2025.
The rate forms the basis for other interest rates, including rates for mortgages, small business loans, or personal loans. Any existing loan or line of credit that has a fixed interest rate is not affected by a change in the prime rate. This includes any student loans, mortgages, savings accounts, and credit cards that are issued with fixed rates rather than variable rates. The prime rate is the interest rate that commercial banks charge creditworthy customers and is based on the Federal Reserve’s federal funds overnight rate. The prime rate is not fixed and can change over time based on changes in the federal funds rate, inflation, the demand for loans, and other economic factors.
It is often used as a reference rate (also called the base rate) for many types of loans, including loans to small businesses and credit card loans. On its H.15 statistical release, “Selected Interest Rates,” the Board reports the prime rate posted by the majority of the largest twenty-five banks. Furthermore, variable rate loans such as credit card APR, some student loans, or HELOC loans are also impacted. During high prime rates, these loans force people to pay more in interest, causing consumers to spend less. With these major impacts, it is clear that the US prime rate has a major influence on how consumers are spending and on the US economy overall.
FRED
The fixed rate used varies by the type of loan and each individual lender. So a credit card, for example, could say that your actual APR will be 9.99% + prime rate. As the prime rate changes, your card’s annual percentage yield (APR) will increase or decrease within a billing cycle or two. The goal of the Federal Reserve is to encourage or discourage borrowing by businesses and consumers. The prime rate is reserved for only the most qualified customers, those who pose the least amount of default risk. If the prime rate is set at 5%, a lender still may offer rates below 5% to well-qualified customers.
As of December 20, 2024, the federal funds rate is 4.50%, with the federal fund target rate being 4.25% to 4.50%. Just as the federal funds rate serves as the basis for the prime rate, the prime rate serves as the starting point for most consumer banking products. It acts as a precursor of the state of the economy by reflecting how easy it is to borrow, whether the government is encouraging or discouraging spending, and how confident banks feel about loaning money. The rates individual borrowers are charged are based on their credit scores, income, and current debts. Since they’re based on the federal funds rate, prime rates also reflect the state of the economy.
- Any existing loan or line of credit that has a fixed interest rate is not affected by a change in the prime rate.
- Most credit cards have variable interest rates set several percentage points above the prime.
- The prime rate may not change for years or may change several times within one year, especially in economically turbulent times.
- On the other hand, when the economy grows too fast, the Fed raises the rate to stave off inflation.
- A significant change in the prime rate often signals that the Federal Reserve has changed the federal funds rate.
What Loans Are Not Affected by a Change in the Prime Rate?
Debt with a variable interest rate can be affected by the prime rate because a bank can change your rate. This includes credit cards as well as variable rate mortgages, home equity loans, personal loans, and variable interest rate student loans. The graph and chart reported below are based upon the rates on the first day of each respective month over the past decade. Publications may also refer to the Wall Street Journal Prime Lending Rate or the WSJ Prime Lending Rate. In addition to commercial loans and credit card rates, many consumer loans are based upon the Prime Rate today, including credit products like home equity loans, car loans, and personal loans. Banks generally use fed funds + 3 to determine the current prime rate.
When looking at the historical prime rate, you must first look to the historical fed funds rate. It peaked in December of 1980 (when inflation was in the double digits) at 19-20% – and the prime rate followed suit, reaching a record high at 21.50%. When the prime rate changes, it affects individuals’ and businesses’ savings rates and ability to borrow. The best ways to prepare for changing prime rates are by staying informed on the state of the economy and updates from the Federal Reserve.
Board of Governors of the Federal Reserve System
For example, during the Great Recession the prime hit around 3.25%. The prime rate, or the prime lending rate, represents the lowest interest rate banks and many of the best online brokerages offer to their most creditworthy customers. While it’s typically reserved for large corporations and high-net-worth individuals, it is a benchmark for other interest rates. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products.
However, you may still take advantage by opting to refinance your mortgage at a lower rate instead. Here’s the prime rate today in 2025 and the Federal Reserve’s influence on today’s prime rate. The highest prime rate ever recorded in the U.S. was 21.5%, which was reached in December 1980. The prime rate in Canada is 5.45% and 1.63% in Japan as of January 2025. Our mission is to keep our audience educated and financially literate with free finance and stock market tools.
Most credit cards have variable interest rates set several percentage points above the prime. It was cut by 0.25 percentage points stock crash history after the FOMC reduced the target range for the federal funds rate to 4.25%-4.50% in December 2024. On Dec. 18, 2024, the Federal Open Market Committee (FOMC) voted to lower the target range for the federal funds rate to 4.25%-4.50% (a decrease of 0.25 percentage points from the previous month. The prime rate may predict broader economic trends, such as higher borrowing rates and market liquidity. Financial institutions often use the prime rate to determine the appropriate interest rates they should charge people.
The Fed sets and adjusts the federal funds rate to keep the US economy on an even keel between recession and over-expansion. When economic growth slows down or starts to recede, the federal funds rate is lowered to spur economic growth. On the other hand, when the economy grows too fast, the Fed raises the rate to stave off inflation. Despite being a viable or floating interest rate, the prime rate does not regularly change. Rather, banks adjust it according to economic and business cycle shifts.