Current and Historical US Prime Rates

The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages. Since the US prime rate is the base lending rate for banks, changes can have a large impact on consumers and businesses. The prime rate has a major impact on when people apply for home or car loans. This is because people want the lowest interest rate possible, so few apply for home or auto loans when the prime rate is high.

(rate on first of each month – for specific change dates see here)

It alters when three-quarters of these financial institutions adjust their rates. The prime rate increased since May 2022, moving in accelerator indicator tips tandem with the FOMC’s increases to the fed funds rate to combat high inflation. An interest rate is the percentage of a loan amount that a lender charges. It is the lender’s compensation, and the percentage varies with each type of loan.

The federal funds rate is the primary tool that the Federal Open Market Committee uses to influence interest rates and the economy. Changes in the federal funds rate and the discount rate also dictate changes in The Wall Street Journal prime rate, which is of interest to borrowers. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. The 11th District Cost of Funds is often used as an index for adjustable-rate mortgages. The prime rate is determined by individual banks and used as the base rate for many types of loans, including loans to small businesses and credit cards.

The Federal Funds Rate

It increases the federal funds rate to bring inflation under control. 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. During times of economic growth, the prime rate tends to be higher, while it tends to be lower during times of recession or financial turmoil. The prime interest rate, which is also called the prime lending rate, is largely determined by the federal funds rate set by the FOMC of the Federal Reserve. The prime rate does not directly impact auto loans, but generally, it results in higher auto loan rates, making it more expensive for lenders to borrow money.

Wall Street Journal prime rate

That said, the Wall Street Journal’s prime rate is one of the most commonly cited averages — the “official source,” so to speak. The WSJ surveys 10 of the largest US banks and publishes a consensus prime based on their rates. The Journal reports this average prime rate daily, even if it hasn’t changed.

Personal and small business loans

When the prime rate is high, it often makes borrowing a lot more challenging. The Federal Open Market Committee recalculates this rate eight times yearly (roughly every six weeks) based on market conditions. The latest prime rate change is in response to the Fed’s last rate cut in 2024. You’ll also get the best rates by comparing offers from multiple lenders, maintaining a good credit score, and managing your debt. For example, if you have a 30-year mortgage, it might not move much when the prime rate decreases.

So, I’ll discuss what the prime rate is, how it’s calculated, today’s prime rate, the historical prime rate, and how it can impact your APR and your bottom line. The prime rate can indirectly impact the performance of your investments, with higher interest rates usually hurting the market. High interest rates make borrowing more expensive, decreasing cash flow and stock price declines. Of course, various other factors also impact your interest rate, such as your credit score, risk profile, type of loan, location, and the length of time it will take you to repay. The rate that an individual or business receives varies depending on the borrower’s credit history and other financial details. These rates are normally defined as an annual percentage rate (APR).

The process is a constant electronic flow of money that ensures that each bank has sufficient liquidity to operate from day to day. Every line of credit or loan has an interest rate in the form of a quoted APR (annual percentage rate), that you pay. As the prime rate fluctuates, so should your adjustable rate at the annual reset. For fixed-rate loans, your interest rate will be based on the prime rate at the start of the loan and will not change due to fluctuating prime rates. Variable-rate loans, on the other hand, will go up and down based on the prime rate. Instead, the prime closely follows the federal funds rate that the Federal Reserve sets.

Only stable businesses with the highest credit ratings qualify for the prime rate, as they’re the ones that pose the least risk of defaulting on their loans. The prime rate began to rise significantly in the 1970s as the United States experienced an economic recession and high inflation. The prime rate reached its all-time high of 21.5% in Dec. 1980, as the Federal Reserve sought to curb inflation by raising interest rates. The prime rate plus a percentage forms the base of almost all consumer and business interest rates. For example, a person with an outstanding credit score might be charged, say, prime plus 9% for a credit card, while an individual with only a good score might get a rate of prime plus 15%. The prime rate can have immense implications on your finances and it is essential for personal finance beginners to understand it before they start borrowing money.

The prime rate is a benchmark interest rate used to determine the interest charged on loans. Like other interest rates, it compensates lenders for the risks of extending credit. However, the prime rate is typically reserved for the most creditworthy borrowers, such as large corporations and high-net-worth individuals. A significant change in the prime rate often signals that the Federal Reserve has changed the federal funds rate.

The prime rate can affect many variable-rate loans and lines of credit. However, fixed-rate loans are only affected by the prime rate when they are originally borrowed, as fixed-rate loans don’t fluctuate with the changing prime rate. Remember that other factors, like credit cards and existing debt, also affect loan rates. If you’ve ever taken out a short-term loan, adjustable mortgage, private student loans, or owed money on a credit card, you’ve been impacted by the “prime rate”. The Prime Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers).

Federal Reserve Economic Data

When the prime rate changes, the interest rates on loans and financial products that are based on the prime rate may also change. When the prime rate goes up, so does the cost to obtain small business loans, lines of credit, car loans, mortgages, and credit cards. Rate posted by a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks. Prime is one of several base rates used by banks to price short-term business loans.For questions on the data, please contact the data source.

What Loans Are Not Affected by a Change in the Prime Rate?

As such, the US prime rate and federal funds rate are very closely correlated. When the prime rate changes, the effects ripple out to regular borrowers even though only the most stable corporations with sterling credit scores generally qualify. The prime rate can impact rates on personal loans, small business loans, credit cards, mortgages, and more. The prime rate, as reported by The Wall Street Journal’s bank survey, is among the most widely used benchmark in setting home equity lines of credit and credit card rates. It is in turn based on the federal funds rate, which is set by the Federal Reserve.

• When the prime rate changes, it affects individuals’ and businesses’ savings rates and ability to borrow.
• This is because people want the lowest interest rate possible, so few apply for home or auto loans when the prime rate is high.
• Prime is one of several base rates used by banks to price short-term business loans.For questions on the data, please contact the data source.
• It is in turn based on the federal funds rate, which is set by the Federal Reserve.

While many banks set their prime rate according to the federal funds rate, there’s no universal prime rate. When you see a reference to “the prime rate,” it usually reflects an average rate across financial institutions. Commercial banks use the federal funds rate when charging each other for overnight loans. In turn, these banks use the same rate as the starting point in setting the prime rate for their best-qualified clients. The fed funds rate is the overnight rate banks and other financial institutions use to lend money to each other.

The prime interest rate is the percentage that U.S. commercial banks charge their most creditworthy customers for loans. Like all loan rates, the prime interest rate is derived from the federal funds’ overnight rate, set by the Federal Reserve at meetings held eight times a year. The prime interest rate is the benchmark banks and other lenders use when setting their interest rates for every category of loan from credit cards to car loans and mortgages. The prime rate is an interest rate determined by individual banks.

• The fixed rate used varies by the type of loan and each individual lender.
• You’ll also get the best rates by comparing offers from multiple lenders, maintaining a good credit score, and managing your debt.
• The fed funds rate is the overnight rate banks and other financial institutions use to lend money to each other.
• The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages.
• The Prime Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers).

Banks make adjustments to the prime rate at the same time; although the rate does not adjust on any regular basis. In recent history, the Prime Interest Rate has been set at 3% over the high end of the range for Fed Funds. The prime rate changes when banks adjust their rates in response to economic health or a shift in the federal funds rate set by the Federal Reserve. Depending on economic conditions, the prime rate may not change for years or multiple times in one year.