Prime Rate

Banking & Credit

The Prime Rate is the interest rate commercial banks charge their most creditworthy corporate customers — typically the Federal Funds Rate plus 3%. Most consumer products (HELOCs, credit cards, ARMs, private student loans) reference prime in their pricing: 'Prime + 2%.' The Wall Street Journal Prime is the published benchmark. When the Federal Reserve raises the Federal Funds Rate, Prime moves in lockstep, immediately repricing all variable-rate consumer debt. In a 5% Fed Funds environment, Prime is 8% and a Prime+10% credit card charges 18%. Understanding Prime helps you predict how rate changes affect your debt costs.