Prime Rate

The Prime Rate is the interest rate charged by banks to their most creditworthy customers for short term loans. The Prime Rate is almost always the same amongst major banks, and the prime rate does not adjust on a regular basis (typically only per Federal Reserve meetings which occur quarterly). The Prime Rate tends to be the lowest going interest rate, and thus only a small percentage of customers qualify for it. The prime rate, however, serves as a basis for higher risk loans offered by banks.

The Prime Rate tends to be a stable index, in comparison to other economic indexes tied to loan products. Historically, the Prime Rate index has risen quickly, but declined very slowly. In general, home equity loans and lines of credit are tied to the Prime Rate. The Prime Rate posted in major publishings such as the Wall Street Journal is derived by using an average of prime rates posted by 30 of the largest U.S. banks.