What is Prime Rate?

The prime rate is a reference interest rate used by commercial banks as the foundation for pricing consumer and business loans. Historically, the prime rate was the rate offered to a bank's most creditworthy customers. In modern practice, the prime rate is typically set at 300 basis points (3.00 percentage points) above the upper bound of the federal funds target rate established by the Federal Open Market Committee. When the Wall Street Journal surveys the largest U.S. banks and publishes a consensus prime rate — widely known as the WSJ Prime Rate — that figure becomes the de facto standard across the industry.

The prime rate directly determines the cost of many variable-rate consumer credit products. Credit card APRs are commonly expressed as prime plus a margin (e.g., prime + 12.99%). Home equity lines of credit (HELOCs) are typically priced at prime plus or minus a margin. Variable-rate private student loans and some personal lines of credit also reference the prime rate. When the Federal Reserve changes the federal funds rate, the prime rate adjusts in lockstep — a change that flows through to credit card rates, HELOC payments, and other variable-rate obligations within one to two billing cycles.

While the prime rate is not a deposit rate, it influences the deposit-rate environment indirectly. When the prime rate rises, deposit rates on high-yield savings accounts, money market accounts, and CDs tend to follow, though the transmission is slower and less uniform than on the lending side. The prime rate is published daily by the Federal Reserve in its H.15 Statistical Release alongside other selected interest rates.