What Is the Prime Rate Today?

The prime rate today is 8.00%. This means that, as of Sept. 19, 2024, this is the benchmark for the interest rate banks offer to customers perceived as the least risky — typically, those with strong credit histories.

Knowing the prime rate is important because banks use it as a baseline to set rates on various types of debt, including mortgages, lines of credit, personal loans and credit cards. Although only the most creditworthy borrowers are offered interest rates close to the prime rate, all other borrowers' rates are influenced in part by the current prime rate.

What is the prime interest rate?

The prime rate, also known as the prime interest rate, is the benchmark for the interest rate that banks charge borrowers with the best credit scores.

Also known as the Wall Street Journal prime rate or the U.S. prime rate, it fluctuates based on changes to the federal funds rate set by the Federal Open Market Committee (FOMC) of the Federal Reserve. The federal funds rate is the interest rate banks charge when lending money to each other overnight. Usually, the prime rate is about 3% higher than the federal funds rate.

Historical prime rates

Examining changes in the prime rate over time can give you an idea of how often and how much it can shift. The prime rate is influenced by various factors, including changes in the federal funds rate and inflation.

For instance, during a recession — such as the one brought about by the COVID-19 pandemic — the FOMC usually lowers the federal funds rate to boost the economy. This, in turn, typically lowers the prime rate.

Here is a look at the prime rate over the last five years and how it has fluctuated:

How does the prime rate work?

While the current prime rate is 8.00%, this doesn’t necessarily mean it will be your interest rate. Banks typically use the prime rate as a starting point and may offer interest rates that are at, below or above the prime rate. Most banks add a margin on top of the prime rate when setting a loan’s interest rate, based on various factors, including the bank’s costs, desired return and the borrower’s credit history.

A borrower with strong credit may get a rate close to the prime rate, while a borrower with a lower credit score may have a higher margin added to their rate. For example, if the prime rate is 8.00%, the bank may add a 3% margin for a borrower with good credit, resulting in an 11% interest rate. Conversely, a borrower with a lower credit score may have a 4% margin added, making their rate 12%.

How does the prime rate affect you?

It’s important to be aware of the prime rate because it can affect the cost of borrowing. When the prime rate changes — usually due to economic conditions — rates may shift on various financial products, including credit cards, personal loans and lines of credit.

If you have a loan with a variable interest rate, you’re particularly vulnerable to prime rate changes because a bank can adjust your rate. A change in the prime rate may increase or decrease your interest rate, depending on how the prime rate shifts.

Here are some common ways a prime rate change can affect your financial situation:

• Mortgage rates: If you have an adjustable-rate mortgage (ARM), an increase in the prime rate can result in a higher mortgage rate, which can lead to higher monthly payments.
• Home equity loans: Changes in the prime rate can affect your variable-rate home equity line of credit (HELOC) and home equity loans. When the prime rate goes up, the interest rate on your home equity loans may also rise, resulting in higher monthly payments.
• Credit cards: An increase in the prime rate typically leads to higher interest rate charges on credit card balances, making it more expensive to carry credit card debt.
• Small business loans: For small business loans tied to the prime rate, an increase in the prime rate can lead to a higher interest rate and elevated monthly payments for the business.

Who sets the prime rate?

The prime rate is set by individual banks. Although the Federal Reserve doesn’t have a direct role in setting it, banks largely base their prime rates on the target level of the federal funds rate, usually set at Federal Reserve meetings.

Generally, banks add 3% to the federal funds rate to determine the prime rate they offer borrowers. For example, if the federal funds rate is 6%, banks may set the prime rate at 9%.

Frequently asked questions

How often does the prime interest rate change?

The prime rate doesn’t change on a regular schedule. Instead, it adjusts in response to economic factors, such as changes to the federal funds rate or significant economic events. In some years, the prime rate may stay the same or shift slightly. In other years, the prime rate may change multiple times.

Does the prime rate affect mortgage rates?

Yes, the prime rate influences mortgage rates, particularly adjustable-rate mortgages (ARMs). Changes to the prime rate can cause ARM rates to fluctuate, which can affect your monthly payments. You won’t see an effect if you have a fixed-rate mortgage because your rate will stay the same regardless of changes to the prime rate.

Are all loans affected by the prime rate?

No, not all loans are influenced by the prime rate. Loans with fixed interest rates aren’t affected as the rate is locked in for the entire loan term. For example, let’s say you have a fixed-rate personal loan with an 8% interest rate. If the prime rate goes up, your interest rate will remain at 8%.