Prime Rate

The prime rate refers to the interest rate charged by banks to their most preferred customers. The federal funds rate and the prime rate are linked and typically move in the same direction (with prime generally being around three percent higher).¹ Therefore, when the Federal Reserve adjusts the federal funds rate, a corresponding adjustment may be applied to the prime rate.

Fast Facts

1. Prime rate as of May, 2008: 5.00%
2. Banks often charge customers the prime rate plus an additional percentage
3. Prime is used in auto loans, home loans, credit cards and sometimes student loans
4. Can vary between banks
5. All-time High: 20.5% (August, 1981)²
6. All-time low: 2.0% (January, 1949 - August, 1950)²

Wall Street Journal

The prime rate is often indexed by The Wall Street Journal, whereby the publication attains a consensus by surveying approximately 30 of America's largest banks. The Wall Street Journal prime rate is the most widely used among lenders.³

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