prime rate

Source

In general, the prime rate runs approximately 3% above the Federal Funds Rate, the interest rate that banks charge to each other for overnight loans made to fulfill reserve funding requirements. (The Federal funds rate plus a much smaller increment is frequently used for lending to the most creditworthy borrowers today, as is LIBOR, the London Interbank Offered Rate.) The Federal Open Market Committee (FOMC) meets eight times per year wherein they set a target for the federal funds rate. Other rates, including the Prime Rate, derive from this base rate.

The most commonly recognized prime rate index is the Wall Street Journal Prime Rate (WSJ Prime Rate), published in the Wall Street Journal. Unlike other indexed rates, the prime rate does not change on a regular basis; rather, it changes whenever banks need to alter the rates at which borrowers obtain funds. The WSJ defines the prime rate as "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks." It has been speculated though that this is no longer the real definition, (and that the prime rate is simply the fed funds target rate + 3) because most corporate loans are indexed to LIBOR.^{citation needed]}

When 23 out of 30 of the United States' largest banks change their prime rate, the WSJ prints a composite prime rate change.

Uses

The Prime Rate is used often in calculating mortgages and other variable rate loans. It is used in the calculation of some private student loans. Many credit cards with variable interest rates have their rate specified as the prime rate plus a fixed value.

See also

External links

• Money Cafe Prime Rate including historical data
• Prime Rate Changes History: Dates and Rates - Fed prime rate, not WSJ prime rate
• Enth: Searchable Prime Rate data