What is the prime rate today?
Updated: November 11, 2024
The prime rate today is 7.75%
Prime rate is a financial term for an interest rate offered by a band when lending to its most creditworthy customers at its lowest rate. Each bank can set its own prime rate, and you may come across prime rates published by the Wall Street Journal and other sources. The prime rate today varies depending on the lender.
Increases in the prime rate and the funds rate equate to higher borrowing costs for everyday loans such as car loans, home equity lines of credit and credit cards. Since the rate increases make borrowing more expensive, they can lead to less consumer spending, which then helps to reduce inflation.
Few borrowers get loans at the prime rate but have their mortgage, credit card, and other rates set based on it. For example, you may be offered a credit card with an interest rate that is the prime rate plus 5%.
Here’s a closer look at how the prime rate works and the prime rate today so you can make the most informed financial decision.
What is the current prime rate?
The prime rate today is 7.75%. That’s based on the latest rate published by the Wall Street Journal.
Prime rates tend to rise and fall when the Federal Reserve updates its target interest rate for interbank lending. If the Fed Funds Rate, as it is known, rises by 0.25%, for example, the prime rate will likely rise by 0.25%. Other significant economic changes and the bank’s financial position may further influence the specific rate used by each lender.
In recent years, interest rates were cut dramatically at the start of the COVID-19 pandemic and subsequently raised to combat inflation. In September 2024, the Federal Reserve cut rates by 0.5% to help spur economic growth and job creation.
WSJ prime rate
The Wall Street Journal publishes what's considered to be the definitive U.S. prime rate, which is determined through a survey.
As the publication explains, its Wall Street Journal prime rate is "the base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks."
How does the prime rate change?
Banks set their own prime rates, but they're all typically the same — three percentage points above whatever the federal funds rate happens to be.
The federal funds rate is the interest rate banks charge each other for overnight loans so they can meet their reserve requirements. Those are the amounts of money the Fed requires banks to have on hand at the end of each business day, partly to guard against bank failures.
The prime rate has a direct impact on certain types of credit, namely loans with rates that are adjustable, not fixed — but it still influences other interest rates in a more roundabout way.
Prime rate history—a look at historical prime rate
Looking back, the Wall Street Journal prime rate reached 21.5% in 1980 and sat as low as 3.25% in 2008. Recent rates have hovered around 6% to 8% as of this writing. Rates can change at any time without notice, but you may be able to predict the trend based on current economic conditions.
After reaching its peak in late 1980, the prime rate gradually declined throughout the 1980s and 1990s. During this period of extended economic growth, the rate typically ranged between 6% and 10%. With a stable economy and low inflation, rates dropped, allowing lower-cost borrowing for businesses and consumers alike.
Rates continued to decline in the 2000s. In response to the financial crisis in 2008, the Federal Reserve cut rates to near zero, bringing the prime rate to a historic low of 3.25%. Rates remained low as the financial sector and mortgage markets slowly recovered. Rates remained at historic lows through 2015.
Rates began to rise slowly to temper economic exuberance and crept up until the start of the COVID-19 pandemic. When the economy nearly shut down due to the virus, the Fed quickly acted to drop rates again to near zero, and the prime rate followed. This offered historically low mortgage rates and relatively low borrowing costs for other loans.
Since the end of COVID, rates have slowly risen to keep inflation at bay, though in late 2024, the Federal Reserve changed course and lowered rates modestly to improve economic prospects while still avoiding out-of-control inflation.
There’s no guarantee of future interest rates. As economic conditions ebb and flow, so will interest rates. If you see favorable rates for your financial needs, it may be a good time to lock in a long-term rate, such as a 30-year mortgage, before rates rise again.
Prime rate—last 10 years
How does the prime rate work?
Our team put together a helpful video to help you better understand how the prime rate works. Remember that the prime rate fluctuates with economic conditions and the banking industry's needs.
We briefly breaks down the prime rate's fundamental concepts in simple terms to help learn about its relationship to the federal funds rate, how banks use it to set interest rates for various lending products, and why it's such an important economic indicator to follow.
We'll also explore how changes in the prime rate can affect your personal finances, from credit card interest to mortgage rates. Whether you're a business owner, an investor, or simply managing your finances, understanding the prime rate is crucial in today's economic landscape. Let's dive in and demystify this critical financial concept.
How is the prime rate determined?
The prime rate is determined primarily through the actions of the Federal Reserve and major banks.
The Federal Reserve sets the federal funds rate, the interest rate banks charge each other for overnight loans. Major banks like Chase, Bank of America, Wells Fargo, US Bank, and Citi then use this rate as a baseline to establish their prime rate, typically setting it about three percentage points above the federal funds rate.
The Wall Street Journal U.S. prime rate is the base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks. This change usually occurs in response to adjustments in the federal funds rate by the Federal Reserve.
While individual banks can set their own prime rates, they generally align with the published WSJ prime rate to remain competitive. This rate serves as a benchmark for various consumer and business loan products and influences interest rates across the economy.
How does the prime rate change?
Banks set their own prime rates, but they're all typically the same or extremely close to each other. Most commonly, banks use a prime rate that’s three percentage points above whatever the federal funds rate is at that time.
Remember, the federal funds rate is a target set by the Federal Reserve for the interest rate banks charge each other for overnight loans to meet their reserve requirements. A reserve requirement is an amount the Fed requires banks to have on hand, mainly to ensure financial stability and guard against bank failures.
The prime rate directly impacts certain types of credit, namely loans with rates that are adjustable, not fixed — but it still influences other interest rates in a more roundabout way.
How does the prime rate affect me?
The prime rate affects you in several ways:
- Mortgages: Mortgage rates for new fixed-rate and adjustable-rate loans are heavily influenced by the prime rate. Once they reach the adjustment period, adjustable-rate mortgages typically follow current prime rates per your loan terms.
- Credit Cards: Many credit cards have variable rates tied to the prime rate. When the prime rate rises, your card's APR may increase. Conversely, you may see your rate decrease when the prime rate drops.
- Personal Loans: Interest rates for auto loans and HELOCs often follow the prime rate. That applies to new fixed-rate loans and ongoing adjustable-rate loans.
- Savings Accounts: Higher prime rates may lead to better interest on savings accounts and CDs. That’s a win for long-term savings, such as in high-yield savings accounts.
- Overall Economy: The prime rate influences lending and borrowing costs, affecting economic growth, employment, and inflation. These factors trickle down into the economy and may impact your financial well-being.
Understanding these effects can help you make informed financial decisions as economic conditions change.
Prime rate and variable-rate loans
If you have credit cards or a home equity line of credit, you feel the movements in the U.S. prime rate most closely.
The prime rate piggybacks off the federal funds rate, which is one of the Federal Reserve's primary tools for nudging the economy. Banks typically take the federal funds rate and add three percentage points to get their prime rate.
The central bank doesn't exactly set the federal funds rate; it's ultimately decided by market supply-and-demand forces. But the Fed's policymaking panel — called the Federal Open Market Committee, or FOMC — establishes a target for the federal funds rate.
Prime rate and other types of loans
Interest rates on auto loans are often tied to the U.S. prime rate too, and many adjustable-rate mortgages, or ARMs, adjust in tune with the prime rate.
The interest on ARMs is fixed for the first several years, then it moves up or down along with a benchmark interest rate — often the prime rate. A common adjustable-rate mortgage is the 5/1 ARM, with an interest rate that's fixed for five years and can adjust every one year after that. The interest rates on personal loans and popular fixed-rate mortgages do not dovetail with the prime rate and the federal funds rate, but there is an indirect effect on what borrowers pay.
Interest rates on those products change in sync with the prime rate. The adjustable rate on a HELOC might be advertised as "prime plus 1%" or "prime plus one," for example.
In similar fashion, a credit card might have an annual percentage rate, or APR, described as "prime plus 11.49%" or "prime plus 9.99%." Due to increases in the prime rate, the interest you pay on loans such as your HELOC and credit card balance will increase as well.
Sources
Wall Street Journal, Money Rates
FedPrimeRate, Prime Rate History
Federal Reserve, What is the prime rate, and does the Federal Reserve set the prime rate?
Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.
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