what is prime rate

The prime rate is an interest rate used by banks as a basis to set rates for different lending products, such as credit cards and home loans. It is the interest rate that commercial banks charge their most creditworthy customers, generally large corporations. The Federal Reserve System sets the federal funds overnight rate which serves as the basis for the prime rate. The prime rate varies little among banks and adjustments are generally made by banks at the same time, although this does not happen frequently. The prime rate is determined by individual banks based on various factors, including the banks costs and desired return, general economic conditions, and other factors. The prime rate is used as a reference point for pricing some loans, and banks may price loans to their customers at, above, or below the prime rate. As of November 13, 2023, the current prime rate is 8.50% in the United States.