The bank prime rate is the interest rate that banks charge their most creditworthy customers for short-term loans
The prime rate (also called the prime lending rate) is a baseline number that major U.S. banks use to set the cost of borrowing. It is not a rate you will see advertised on a savings account or checking account—it is the rate banks use internally to price loans to their best customers, and it filters down to affect the rates you see on credit cards, home equity lines of credit, and adjustable-rate mortgages.
The prime rate moves when the Federal Reserve changes its benchmark interest rate, called the federal funds rate. When the Fed raises rates, banks raise the prime rate. When the Fed cuts rates, banks cut the prime rate. This happens quickly—usually within a day of a Fed announcement.
Your savings account or money market account at a bank may earn interest that moves up and down with the prime rate, though the connection is indirect. More directly, if you carry a credit card balance or have a home equity line of credit, the interest you pay is usually tied to the prime rate plus a margin the bank adds on top.
Key Takeaways
- The prime rate is what banks charge their most creditworthy borrowers, and it moves when the Federal Reserve changes its benchmark rate.
- Your savings account interest may move with the prime rate, but the connection depends on the type of account and your bank's policies.
- Credit card rates and home equity lines of credit are usually tied directly to the prime rate plus a fixed margin.
- The prime rate is published daily by the Wall Street Journal and is the same across all major U.S. banks on any given day.
How the prime rate connects to what you earn and what you pay
If you have a savings account or money market account, the interest rate your bank pays you is set by the bank, not by the prime rate directly. However, banks tend to raise savings rates when the prime rate rises (because they can charge more for loans and can afford to pay depositors more) and lower savings rates when the prime rate falls. The lag between a prime rate move and a change to your savings rate can be days or weeks.
If you have a credit card with a variable rate, your interest rate is almost always tied to the prime rate. The card issuer adds a fixed percentage on top—usually 8 to 12 percentage points—and that sum is your rate. When the prime rate moves, your card rate moves automatically, usually within one or two billing cycles. Fixed-rate credit cards do not move with the prime rate.
If you have a home equity line of credit (HELOC) or an adjustable-rate mortgage (ARM), the rate you pay is typically prime plus a margin set by your lender. These rates adjust on a schedule spelled out in your loan documents—sometimes monthly, sometimes quarterly, sometimes annually. Your loan paperwork will tell you when and how often your rate resets.
Who sets the prime rate and when it changes
The prime rate is not set by a single authority. Instead, the Wall Street Journal surveys the 30 largest U.S. banks and publishes the rate that most of them are charging. Because banks move together in response to Federal Reserve decisions, the published prime rate is almost always the same across all major banks on any given day.
The Federal Reserve meets eight times per year to decide whether to raise, lower, or hold steady its benchmark rate (the federal funds rate). Banks watch these meetings closely. When the Fed raises its rate by 0.25 percentage points, the prime rate typically rises by the same amount within a day. When the Fed cuts, the prime rate cuts by the same amount.
You can find the current prime rate on the Wall Street Journal's website, on Federal Reserve websites, or on your bank's website. The rate is updated whenever the Fed makes a change, which happens several times per year but not on a fixed schedule.
The difference between the prime rate and other interest rates
The prime rate is one of three main benchmark rates in the U.S. financial system. The federal funds rate is the rate the Fed targets—it is the rate banks charge each other for overnight loans. The prime rate is always 3 percentage points higher than the federal funds rate, by convention. The SOFR rate (Secured Overnight Financing Rate) is a newer benchmark that some lenders now use instead of the prime rate for certain loans.
Your personal interest rate—on a credit card, mortgage, or loan—will always be higher than the prime rate because lenders add a margin to cover their risk and operating costs. A borrower with excellent credit might get prime plus 6 percentage points on a home equity line of credit. A borrower with fair credit might get prime plus 10 percentage points. The margin reflects the lender's assessment of how likely you are to repay.
What happens to your accounts when the prime rate moves
When the Federal Reserve raises the prime rate, banks can charge more for loans, so they often raise the rates on credit cards and adjustable-rate mortgages within days. At the same time, they may raise the rates they pay on savings accounts and money market accounts—but this usually happens more slowly and by a smaller amount. Banks are more eager to raise what they charge than to raise what they pay.
When the Federal Reserve cuts the prime rate, the reverse happens. Credit card rates and HELOC rates fall quickly. Savings rates fall more slowly and often by less than the prime rate cut. This is why savers often lose ground during periods of falling rates.
If you have a fixed-rate credit card, a fixed-rate mortgage, or a fixed-rate loan, the prime rate does not affect you directly. Your rate is locked in and will not change unless you refinance or the card issuer changes its terms (which they can do with notice).
How to track the prime rate and understand your own rates
The easiest way to track the prime rate is to check the Wall Street Journal's prime rate page or the Federal Reserve's website. Both update within a day of any Fed decision. You can also set up alerts on financial news websites to notify you when the Fed meets or when the prime rate changes.
To understand how the prime rate affects your own accounts, look at your credit card statement or loan documents. Credit cards and HELOCs will usually state something like "prime rate plus 8 percent" or "Wall Street Journal prime rate plus 8 percent." That language tells you your rate will move with the published prime rate. Savings accounts rarely state this explicitly—you have to watch your rate over time to see if it moves when the prime rate moves.
If you are shopping for a credit card or line of credit, ask the lender what margin they will charge on top of prime. A lower margin means you will pay less when rates are high and save more when rates are low. For savings accounts, compare rates across banks—the connection to the prime rate varies, and some banks pay more than others even when the prime rate is the same.
Frequently Asked Questions
Does the prime rate affect my savings account interest?
Indirectly, yes. Banks tend to raise savings rates when the prime rate rises and lower them when it falls. However, the timing and amount vary by bank. Your savings rate is not automatically tied to the prime rate the way a credit card rate is. Check your bank's rate history to see if it moves when the Fed moves.
What is the difference between the prime rate and the federal funds rate?
The federal funds rate is the rate the Federal Reserve targets for banks to charge each other on overnight loans. The prime rate is always 3 percentage points higher than the federal funds rate. The Fed controls the federal funds rate; the prime rate follows automatically.
If the prime rate goes up, will my credit card payment go up when ready?
Your interest rate will go up within one or two billing cycles, but your minimum payment may not change right away. You will see the higher rate applied to any balance you carry. If you pay off your balance in full each month, the rate increase will not cost you anything.
Can my bank change my interest rate if I have a fixed-rate account?
A fixed-rate loan or mortgage will not change when the prime rate moves. However, banks can change the rates on savings accounts and money market accounts at any time with notice. Fixed-rate credit cards can also be changed by the issuer, though they must notify you first.
Where can I find the current prime rate?
The Wall Street Journal publishes the prime rate daily on its website. The Federal Reserve also publishes it. The rate is updated within a day of any Federal Reserve decision. Most financial news websites and your bank's website will also display the current prime rate.