Definition
The prime rate is the interest rate large US banks use as the starting point for pricing many variable-rate loans. It was originally the rate banks charged their most creditworthy (“prime”) business customers. Today it is mostly a benchmark: credit cards, home equity lines of credit (HELOCs), many small-business loans and some private student loans are quoted as prime plus a margin.
How it works
Each bank sets its own prime rate, but since the mid-1990s virtually all large banks follow one rule:
Prime rate = upper end of the Fed’s target range + 3 percentage points
So when the Federal Reserve moves its target, banks announce a new prime rate the same day or the next. The figure widely quoted in the press, the WSJ Prime Rate, is a survey of the largest banks. The chart uses the Federal Reserve’s monthly series, which averages the days in each month; in a month with a rate change the value falls between the old and new rate.
Example
A credit card with an APR of “prime + 14%” charged 17.25% when the prime rate was 3.25% in early 2022. After the Fed’s hikes lifted prime to 8.50% in July 2023, the same card charged 22.50%. On a $5,000 balance carried for a year, that is roughly $260 more in interest – with no change to the card’s terms.
Prime rate in history
Readings at turning points, taken from the same data as the chart above.
| Date | Prime rate | Fed funds rate | What was happening |
|---|---|---|---|
| Jan 1949 | 2.00% | – | Postwar era of very low, rarely changed rates. |
| Jul 1974 | 11.97% | 12.92% | Double-digit prime rate during the first oil shock. |
| Aug 1981 | 20.50% | 17.82% | Record monthly high as the Volcker Fed fought inflation. |
| Dec 1994 | 8.50% | 5.45% | By now prime had settled at 3 points above the Fed’s target. |
| Dec 2008 | 3.61% | 0.16% | Fed cuts to near zero; prime soon falls to 3.25%. |
| Dec 2015 | 3.37% | 0.24% | First increase from 3.25% after seven years. |
| Aug 2023 | 8.50% | 5.33% | Highest since 2001. |
| Oct 2026 | 7.00% | 3.88% | Latest reading. |
Monthly values; market rates are monthly averages of daily data. Explore every month on the Prime Rate chart.
Common mistakes
- “The prime rate is what good borrowers pay.” Large companies usually borrow below prime, at spreads over SOFR or in the bond market. Consumers usually pay prime plus a margin.
- “Mortgages follow the prime rate.” Fixed-rate mortgages follow long-term Treasury yields. Only some adjustable products, such as HELOCs, are tied to prime.
Put this chart on your website
Set the options, check the preview, then copy the code into any HTML page, blog post or sidebar. There is nothing to install and no account to create; the chart refreshes itself when new data is published.
Preview
Free for personal and commercial sites. The only condition: leave the two credit links in the code visible. Every setting is explained on the Embed page, where you can also pick any of our charts.
Prime rate: questions and answers
How often does the prime rate change?
Only when the Federal Reserve changes its target range, so at most eight times a year and often not at all for long periods.
Is the prime rate the same at every bank?
Not legally, but in practice almost all large US banks use the same prime rate.