prime rate

noun

Definition of prime rate

: an interest rate formally announced by a bank to be the lowest available at a particular time to its most credit-worthy customers

— called also prime interest rate

Examples of prime rate in a Sentence

Recent Examples on the Web

But as the Federal Reserve continues to push up interest rates, the prime rate will go up, and rates on home equity loans will adjust higher, too. — Susan Tompor, Detroit Free Press, "Students aren't the only ones crushed by school debt," 11 July 2018 Home equity lines of credit have variable rates and can run in the 5 percent to 7 percent range -- reflecting a prime rate at 5 percent. — Susan Tompor, Detroit Free Press, "Students aren't the only ones crushed by school debt," 11 July 2018 That is lower than the prime rate, a benchmark rate for commercial-bank lending to top clients, which is now 5%. — Andrea Fuller, WSJ, "Pistachio Billionaires’ Foundation Lends Millions to Business Associates," 28 June 2018 In many cases, higher interest rates can hit in the first billing period after a change in the prime rate. — Susan Tompor, Detroit Free Press, "Why Fed rate hike can drive you to pay down credit cards," 13 June 2018 Ronald Man, a strategist at Bank of America Merrill Lynch in Hong Kong, says higher prime rates could end the bull run on house prices. — Bloomberg.com, "What Could End Hong Kong's Property Boom? Here Are Some Triggers," 2 May 2018 Typically, HELOCs come with floating interest rates tied to an index, often the bank prime rate. — Kenneth R. Harney, chicagotribune.com, "Equity-rich Americans have options for tapping into funds," 10 Apr. 2018 Most home equity lines of credit have a variable interest rate that’s tied to the prime rate. — Susan Tompor, ajc, "5 things Federal Reserve interest rate hike means for your wallet," 26 Mar. 2018 Typically, HELOCs come with floating interest rates tied to an index, often the bank prime rate. — Kenneth R. Harney, chicagotribune.com, "Equity-rich Americans have options for tapping into funds," 10 Apr. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'prime rate.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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Last Updated

21 Sep 2018

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The first known use of prime rate was in 1924

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More Definitions for prime rate

prime rate

noun

Financial Definition of prime rate

What It Is

The prime rate is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations.

How It Works

Anyone who has borrowed money knows that different banks charge different interest rates. So when people refer to the prime rate, they are usually referring to the average prime rate among banks. The Wall Street Journal is one of the most common sources for this statistic. It calculates and publishes the average prime rate by surveying the 30 largest banks in the U.S.

Below you'll find a graph of the historical average prime rate published by the Federal Reserve, which surveys 25 banks across the nation.

In general, the rate is the same among nearly all the surveyed banks, and they tend to change their rates at the same time. When 75% of these banks (23 banks) change their rates, the Wall Street Journal changes its average.

Why It Matters

The prime rate is one of the most widely used market indicators, albeit a lagging one, and it is a major benchmark for mortgage and credit card rates. It is also often the basis for adjustable-rate loans. The definition of prime rate on InvestingAnswers

For example, if a bank is offering a home equity loan at "prime plus 5" and its prime rate is 6%, then the bank is essentially offering borrowers an 11% loan (6% + 5%) with an interest rate that will fluctuate along with the prime rate. It is important to remember that not everyone qualifies for a bank's prime rate -- this rate is only for the customers least likely to default.

The prime rate is influenced (but not dictated) by the Federal Funds rate, which is set by the Federal Reserve. The Federal Funds rate is the rate at which banks can borrow from each other or the Federal Reserve in order to meet their reserve requirements. The higher this rate is, the higher a bank's prime rate usually is.

Source: Investing Answers

prime rate

noun