US prime rate definition
US prime rate
The US prime rate is the short-term interest rate charged by US banks to loan money to their most trusted customers. The US prime rate is published as an average by the Wall Street Journal when 23 of the 30 largest US banks change their prime rates.
These prime rates are a baseline at which individual banks set their consumer interest rates like mortgage and credit card rates.
What is the difference between prime rate and Fed rate?
While the Federal Reserve has no role in establishing the prime rate, many banks set their prime rates about three percentage points above the Fed rate established by the Federal Open Market Committee.
The Fed rate is by the Federal Open Market Committee, which meets eight times a year. It established at what rate banks charge each other for short-term loans. Meanwhile, the prime rate is set individually by the country’s largest banks and serves as a base rate for loans from banks to other businesses and individuals such as small business loans, mortgage loans, or credit card loans.