Glossary · Bonds and rates
Prime rate
The prime rate is the interest rate US banks charge their most creditworthy business customers; credit cards and many other loans are priced off it.
Also called: prime, bank prime loan rate, WSJ prime rate, prime lending rate
Oct 2026. The fed funds rate that month: 3.88%, 3.12 points lower.
In plain words
Banks don’t invent a new interest rate for every loan. They start from a base, the prime rate, and add a margin depending on how risky the borrower is. The prime rate itself is what a bank would charge its very safest customers.
In the US, big banks keep it at the top of the Fed’s target range for the federal funds rate plus 3 percentage points, so it moves in lockstep with the Fed. It was 7.00% in Oct 2026.
Many loans follow it automatically: most credit cards, home equity lines of credit and many small-business loans. When the Fed raises its rate by a quarter point, prime rises by a quarter point too, usually the next day, and so do those loans.
Example
A credit line at prime + 2
- Your home equity line of credit charges prime + 2 points. With prime at 7.5%, you pay 9.5%.
- On a $20,000 balance that is $1,900 a year in interest.
- The Fed cuts its rate by 0.5 points; prime falls to 7.0% and your rate to 9.0%.
- Interest drops to $1,800 a year: $100 less, without you doing anything.
It works the other way too. In 2022 and 2023 the Fed raised its rate by more than 5 points, and loans tied to prime got dearer by the same amount.
One level deeper
The prime rate dates back to the 1930s. For decades each bank set its own; since the mid-1990s big banks have kept it 3 points above the Fed’s target, and the figure most loan contracts cite is the one the Wall Street Journal publishes from the rates of the largest banks.
Since 1995, the gap between prime and the effective federal funds rate has averaged about 3.1 points. Before then it moved around more. At its peak in the early 1980s, prime averaged 20.5% in a month (Aug 1981).
Despite the name, the biggest companies rarely pay prime: they borrow more cheaply by selling bonds or short-term commercial paper, or at rates tied to market benchmarks. Prime matters most for consumers and small businesses.
The prime rate and the Fed’s rate since 1955
Banks’ prime rate against the federal funds rate. Since the mid-1990s the two have moved in lockstep, about 3 points apart.
The numbers behind the chart
| Date | Prime rate | Federal funds rate |
|---|---|---|
| Jan 1955 | 3.0% | 1.4% |
| Dec 1960 | 4.5% | 2.0% |
| Dec 1970 | 6.9% | 4.9% |
| Dec 1980 | 20.4% | 18.9% |
| Dec 1990 | 10.0% | 7.3% |
| Dec 2000 | 9.5% | 6.4% |
| Dec 2010 | 3.2% | 0.2% |
| Dec 2020 | 3.2% | 0.1% |
| Dec 2022 | 7.3% | 4.1% |
| Dec 2023 | 8.5% | 5.3% |
| Dec 2024 | 7.7% | 4.5% |
| Dec 2025 | 6.8% | 3.7% |
| Oct 2026 | 7.0% | 3.9% |
Why it matters
It is the link between the Fed and your wallet: a Fed decision changes a card’s rate within weeks.
Variable-rate debts tied to prime can get much dearer quickly when the Fed raises rates.
It is a quick read of what banks charge their best customers; everyone else pays more.
A common mistake
Myth: The prime rate is the rate most people get.
In fact: It is the base for bank loans, offered only to the safest borrowers. Most others pay prime plus a margin: the average US credit card charged 21.19% in Aug 2026, against a prime rate of 7.00% in Oct 2026.
Questions people ask
What is the prime rate today?
7.00% in Oct 2026, the monthly average of the rate posted by most large US banks. It changes when the Fed changes its target.
Who sets the prime rate?
Each bank sets its own, but in practice the big banks all follow the Fed: prime = the top of the federal funds target range + 3 points.
What loans are tied to the prime rate?
Most credit cards, home equity lines of credit, many small-business loans and some private student loans. The contract says “prime + X%”.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Effective federal funds rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series H15/H15/RIFSPFF_N.D (Federal funds effective rate), Data Download Program. The EFFR is subject to the Terms of Use posted at newyorkfed.org. The New York Fed is not responsible for publication of the EFFR by BigCapital, does not sanction or endorse any particular republication, and has no liability for your use.
- Credit card interest rate at commercial banks, all accounts: Board of Governors of the Federal Reserve System, G.19 Consumer Credit, series TERMCBCCALLNS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Bank prime loan rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series MPRIME; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.