Prime Interest Rate

The prime interest rate is the interest rate that commercial banks charge their most creditworthy customers, typically large corporations with strong credit histories. It is influenced by the federal funds rate set by the Federal Reserve and is usually about 3 percentage points higher than the federal funds rate. The prime rate serves as a benchmark for many other interest rates, including those for credit cards, mortgages, personal loans, and business loans. Changes in the prime rate affect borrowing costs for consumers and businesses and are important indicators of economic conditions.