What Is the Prime Rate Today?

The prime rate is the interest rate that banks charge their best customers. The prime rate today is 8.50%.

Changes to the prime rate can influence interest rates on certain financial products, such as credit cards, auto loans and mortgages. 

The prime rate can affect almost all of us in some way, and understanding how it works can help you make important money decisions.

What is the prime rate?

The prime rate is an interest rate that most banks use as a basis to set annual percentage rates (APRs) on a variety of products. It’s also known as The Wall Street Journal prime rate or the U.S. prime rate.

The prime rate is what banks charge their least risky customers with a good credit history. It’s likely the best available rate, but it’s also not mandatory for lenders to use it.

Banks determine their own prime rates based on the federal funds rate — a key benchmark rate set by the Federal Reserve. The Federal Reserve has no direct role in setting the prime rate, however. 

The prime rate is typically 3 percentage points higher than the federal funds rate. That means when the federal funds rate increases, the prime rate also increases.

How is the prime rate determined?

Banks often use The Wall Street Journal to determine the prime rate. The prime rate is the “base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks,” according to The Wall Street Journal.

The Federal Reserve reports that the prime rate is “posted by the majority of the largest 25 banks.” And the second-largest U.S. bank, Bank of America, notes that its prime rate is “based on various factors, including the bank’s costs and desired return.”

These definitions of the prime rate might lead you to believe that the rate can vary unpredictably — but that’s not the case. For the last 30 years, the prime rate has been set at essentially 3 percentage points above the target federal funds rate. 

Prime rate history

Looking at changes in the prime rate over time can give you an idea of how often and how much it can shift. Although the prime rate has remained below 9.50% since 2000, it reached a high of 21.50% in 1980.

Here is a look at recent prime rate movement and reasons for it.

How does the prime rate affect you?

Changes in the prime rate can affect you in two ways. It can influence what you pay to borrow money: For example, if you have a variable-rate loan, the rate could rise. 

As the prime rate changes, you could see interest charges increase or decrease accordingly with credit cards, personal loans, home equity lines of credit and adjustable-rate mortgages, among other types of debt. 

The prime rate also affects liquidity in the financial markets. When the prime rate is high, liquidity is low; when the rate is low, liquidity is high. That means funds are more readily available — and easier to qualify for — when you want to borrow. Liquidity also supports economic growth. 

Frequently asked questions

What’s the difference between the prime rate and the federal funds rate?

The federal funds rate is a benchmark interest rate set by the Federal Reserve and used by banks when lending to each other overnight. The prime rate is based on the federal funds rate and is the rate that banks charge their best customers. Typically, the prime rate is 3 percentage points higher than the federal funds rate.

How often does the prime rate change?

The prime rate fluctuates when the Federal Reserve changes the federal funds rate. The prime rate doesn’t change at regular intervals, but, rather, in response to economic and other factors.