prime rate
nounDefinition of prime rate
— called also prime interest rate
Examples of prime rate in a Sentence
Recent Examples on the Web
The prime rate in turn is directly related to the federal funds rate, set by the Federal Reserve. — Robert Armstrong, Los Angeles Times, "What Fed rate cut? Credit card interest rates hit a 25-year high," 7 Aug. 2019 Card rates are often set by adding a premium to a fluctuating index — most often the prime rate, the lowest rate banks make available to nonbank customers. — Robert Armstrong, Los Angeles Times, "What Fed rate cut? Credit card interest rates hit a 25-year high," 7 Aug. 2019 Credit card and personal loan interest rates track the bank prime rate, defined as 3 percentage points above the Fed funds target rate. — Tendayi Kapfidze, CBS News, "Fed's first rate cut in more than 10 years: What it could mean for your finances," 1 Aug. 2019 That is lower than the prime rate, a benchmark rate for commercial-bank lending to top clients, which is now 5%. — Andrea Fuller, WSJ, "Pistachio Billionaires’ Foundation Lends Millions to Business Associates," 28 June 2018 Ronald Man, a strategist at Bank of America Merrill Lynch in Hong Kong, says higher prime rates could end the bull run on house prices. — Bloomberg.com, "What Could End Hong Kong's Property Boom? Here Are Some Triggers," 2 May 2018 Typically, HELOCs come with floating interest rates tied to an index, often the bank prime rate. — Kenneth R. Harney, miamiherald, "Equity-affluent Americans have options for tapping into funds | Miami Herald," 11 Apr. 2018 Typically, HELOCs come with floating interest rates tied to an index, often the bank prime rate. — Kenneth R. Harney, chicagotribune.com, "Equity-rich Americans have options for tapping into funds," 10 Apr. 2018 But card rates and prime rates do not move in tandem. — Robert Armstrong, Los Angeles Times, "What Fed rate cut? Credit card interest rates hit a 25-year high," 7 Aug. 2019These example sentences are selected automatically from various online news sources to reflect current usage of the word 'prime rate.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.
Keep scrolling for more
Keep scrolling for more
More Definitions for prime rate
prime rate
nounFinancial Definition of prime rate
What It Is
The prime rate is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations.
How It Works
Anyone who has borrowed money knows that different banks charge different interest rates. So when people refer to the prime rate, they are usually referring to the average prime rate among banks. The Wall Street Journal is one of the most common sources for this statistic. It calculates and publishes the average prime rate by surveying the 30 largest banks in the U.S.
Below you'll find a graph of the historical average prime rate published by the Federal Reserve, which surveys 25 banks across the nation.
In general, the rate is the same among nearly all the surveyed banks, and they tend to change their rates at the same time. When 75% of these banks (23 banks) change their rates, the Wall Street Journal changes its average.
Why It Matters
The prime rate is one of the most widely used market indicators, albeit a lagging one, and it is a major benchmark for mortgage and credit card rates. It is also often the basis for adjustable-rate loans.
For example, if a bank is offering a home equity loan at "prime plus 5" and its prime rate is 6%, then the bank is essentially offering borrowers an 11% loan (6% + 5%) with an interest rate that will fluctuate along with the prime rate. It is important to remember that not everyone qualifies for a bank's prime rate -- this rate is only for the customers least likely to default.
The prime rate is influenced (but not dictated) by the Federal Funds rate, which is set by the Federal Reserve. The Federal Funds rate is the rate at which banks can borrow from each other or the Federal Reserve in order to meet their reserve requirements. The higher this rate is, the higher a bank's prime rate usually is.
Source: Investing Answers
prime rate
nounEnglish Language Learners Definition of prime rate
See the full definition for prime rate in the English Language Learners Dictionary
prime rate
nounLegal Definition of prime rate
— called also prime, prime interest rate