Updated: December 11, 2024
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Today's prime rate is 8%, as reported by The Wall Street Journal's Money Rates. This rate, often used by banks as a benchmark for lending, directly impacts the interest you pay on loans, credit cards and mortgages.
Understanding the prime rate is important for any consumer with borrowed money. As you read on, you'll see how this rate is set and why staying informed can help you manage the costs associated with your financial obligations.
The prime rate today is 8%, influencing the interest rates on loans, credit cards and mortgages.
The prime rate is the interest rate banks offer to their most creditworthy customers. It directly affects borrowing costs on various financial products.
The Federal Reserve sets the federal funds rate, which banks use to determine the prime rate, typically adding around 3%.
Today's prime rate stands at 8%, as The Wall Street Journal reports daily. The rate recently dropped half a point in September 2024. Previously, it had remained steady since July 27, 2023, with a sharp rise from the 3.50% seen between mid-March 2020 and early May 2022. The prime rate chart below shows these changes over time.
Prime Rate Chart
The prime rate is the interest rate banks offer to their most creditworthy customers, such as large corporations and individuals with excellent credit. It’s often considered the base rate for lending.
Banks use the prime rate as a benchmark when setting interest rates on various loans, including mortgages, personal loans and credit cards. While you might not receive the prime rate directly, it influences the rates lenders offer to all borrowers.
The prime rate is determined by adding a margin to the federal funds rate, which is set by the Federal Reserve during their meetings held eight times a year. That means the prime rate adjusts with changes in the broader economic environment.
Understanding the prime rate is important because it directly affects the interest rates on your loans and credit cards. A higher prime rate can lead to higher monthly payments on your credit card balance, straining your short-term budget. Over time, it could also mean paying more interest on a mortgage, which can delay long-term goals like buying a home or saving for retirement. Here’s how the prime rate influences different financial products:
HELOCs usually have variable interest rates tied to the prime rate. When the prime rate rises, your HELOC interest rate and monthly payments increase, reducing the amount of credit available and stretching your budget.
Personal lines of credit often have variable rates based on the prime rate. An increase in the prime rate can lead to higher interest costs and monthly payments, making it more expensive to access funds for emergencies or large purchases.
ARMs typically adjust their interest rates based on the prime rate. As the prime rate increases, so do your mortgage payments, which can significantly impact your monthly budget and the overall cost of your home. If rates change significantly, refinancing your mortgage might help lower your payments.
Many credit cards have variable interest rates linked to the prime rate. If the prime rate increases, your interest rate will likely increase, resulting in higher interest charges on balances and more expensive new purchases.
Small business loans with variable rates are often tied to the prime rate. When the prime rate rises, your loan payments increase, which can reduce your business’s cash flow and impact profitability.
Fixed-rate loans, such as personal loans, auto loans and fixed-rate mortgages, are unaffected by changes in the prime rate. Your interest rate stays the same throughout the loan term. However, the prime rate could influence the rate you receive on new loans.
Consider paying down variable-rate debts, like credit cards and HELOCs, when the prime rate rises to avoid higher interest costs. If you anticipate further rate increases, locking in a fixed rate on new loans or refinancing an existing mortgage could protect you from future hikes.
If the prime rate falls, you might explore refinancing options to secure a lower mortgage or long-term loan rate. Lower rates can reduce your monthly payments and overall interest costs, freeing up cash for savings or other financial goals.
The Federal Reserve, often called “the Fed”, is the central bank of the U.S. and plays a key role in setting the prime rate. It manages the country's money supply and keeps the economy stable by controlling interest rates and inflation.
When the economy heats up, the Fed might raise interest rates to prevent inflation from spiraling out of control. Conversely, a slow economy may lower rates to encourage borrowing and spending. These decisions directly impact the federal funds rate, which banks use to determine the prime rate.
By adjusting interest rates based on economic conditions, the Federal Reserve influences the cost of borrowing across the economy, making its actions critical to anyone with a loan or credit account.
The federal funds rate is the interest rate banks use when they make overnight loans to meet reserve requirements. When the Fed raises or lowers the federal funds rate, it affects the overall cost of borrowing money across the economy.
This rate directly impacts the prime rate, which banks use as a benchmark for consumer loans, credit cards and mortgages. When the federal funds rate goes up, the prime rate often rises, too. For example, if you have a HELOC, a higher prime rate means your interest rate and monthly payments could increase, making it more expensive to borrow against your home equity.
The federal funds rate serves as the foundation for the prime rate. When the Federal Reserve adjusts the federal funds rate, it directly influences the prime rate, which in turn impacts the interest rates that consumers pay on various loans and credit products.
Typically, the prime rate is about 3% higher than the federal funds rate. For example, according to FRED Economic Data, the federal funds' effective rate — a daily average rate banks charge each other for overnight loans — has been 5.33% since August 2023. However, with the prime rate dropping to 8%, the federal funds rate fell slightly to 5.13%.
While the federal funds rate determines interbank lending costs, the prime rate is what banks charge customers with the best credit profile. Understanding these differences helps clarify how changes in the federal funds rate affect your borrowing costs. Here’s a quick comparison:
Feature | Federal Funds Rate | Prime Rate |
|---|---|---|
Purpose | Interbank lending rate for overnight loans | Benchmark rate for consumer loans and credit |
Set By | Federal Reserve | Individual banks, based on the federal funds rate |
Directly Affects | Banks' short-term borrowing costs | Interest rates on consumer loans, credit cards, HELOCs |
Impact on Consumers | Indirectly affects loan interest rates | Directly affects interest rates on loans and credit |
The Federal Reserve meets roughly every six weeks to review and adjust interest rates, with the next meeting scheduled in mid-September. During these meetings, the Fed may raise, lower or maintain the federal funds rate based on current economic conditions.
Any changes to the federal funds rate at these meetings can directly influence the prime rate. If the Fed raises rates, you can expect the prime rate — and your borrowing costs — to increase shortly after.
Given its influence on your finances, it's natural to question how today's prime rate can affect you. We've gathered and answered some of the most common questions about the prime rate to clarify how it works.
The federal funds rate is the interest rate banks lend to each other overnight, set by the Federal Reserve. The prime rate, typically 3% higher, is what banks charge their customers with excellent credit profiles and is influenced by changes in the federal funds rate.
The prime rate changes whenever banks adjust it in response to shifts in the federal funds rate, which the Federal Reserve can change at its scheduled meetings.
No, the Fed determines the federal funds rate. Banks use the federal funds rate to set the prime rate, typically adding about 3%.
To prepare for a prime rate increase, consider paying down variable-rate debt and exploring options to lock in fixed rates on new loans or refinancing existing ones.
There is no fixed limit on how high the prime rate can go — it depends on the federal funds rate and economic conditions.
Yes, the prime rate can affect your mortgage payments, especially if you have an adjustable-rate mortgage (ARM) tied to the prime rate.
The prime rate primarily affects variable-rate financial products like credit cards, HELOCs and some mortgages, but it doesn't directly impact fixed-rate loans.
About Zachary Romeo, CBCA
Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.
Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.
