Prime Rate
The prime rate is the interest rate that commercial banks charge their most creditworthy customers. It is often used as a reference rate for pricing some loans and other financial products. The prime rate is also known as the prime lending rate or the prime interest rate. It is the rate of interest that banks charge their most creditworthy customers, and it is typically 3% higher than the federal funds rate set by the Federal Reserve.
History of the Prime Rate
The prime rate has been in existence since the 1950s. It was originally set by the Federal Reserve, but since the 1980s, it has been set by the individual banks. The prime rate is based on the federal funds rate, which is the rate at which banks lend money to each other. The federal funds rate is set by the Federal Reserve and is used as a benchmark for setting the prime rate.
The prime rate is used as a reference rate for pricing some loans and other financial products. It is used to set the interest rate on credit cards, home equity lines of credit, and other types of consumer loans. It is also used to set the interest rate on business loans, such as lines of credit and commercial mortgages.
Comparison Table
| Type of Loan | Interest Rate |
|---|---|
| Credit Card | Prime Rate + 5% |
| Home Equity Line of Credit | Prime Rate + 2% |
| Business Loan | Prime Rate + 3% |
Summary
The prime rate is the interest rate that commercial banks charge their most creditworthy customers. It is used as a reference rate for pricing some loans and other financial products. The prime rate is based on the federal funds rate, which is set by the Federal Reserve. It is used to set the interest rate on credit cards, home equity lines of credit, and other types of consumer loans, as well as business loans, such as lines of credit and commercial mortgages. For more information about the prime rate, you can visit the websites of the Federal Reserve, the U.S. Treasury, and the Federal Deposit Insurance Corporation.
See Also
- Federal Funds Rate
- Discount Rate
- Interest Rate
- Mortgage Rate
- Credit Card Rate
- Treasury Bill Rate
- Treasury Note Rate
- Treasury Bond Rate
- LIBOR Rate
- Fed Funds Futures Rate
