prime rate

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 The prime rate, which banks charge their most creditworthy customers, nearly doubled by Election Day 1980, peaking at 21.5 percent. — New York Times, "Paul A. Volcker, Fed Chairman Who Waged War on Inflation, Is Dead at 92," 9 Dec. 2019 Investors took note when Beijing snubbed HSBC by excluding it from the group of banks that help set the loan prime rate, a new policy tool. — Andy Mukherjee | Bloomberg, Washington Post, "This Fintech Safari Could Be a Wild Ride," 27 Sep. 2019 The People's Bank of China kept its one-year loan prime rate (LPR) unchanged at 4.15% on Monday. — Laura He, CNN, "Pharmaceutical stocks spike after China reports new coronavirus cases," 19 Jan. 2020 Local lenders raised the prime rate, which is often the basis of a cap on mortgages, for the first time in more than a decade in September. — Washington Post, "What’s Pulling at the Hong Kong Dollar’s Peg," 17 Mar. 2019 Most home equity lines of credit (HELOCs) are variable-rate loans tied to the prime rate, which follows the Federal Reserve’s Federal Funds rate. — Washington Post, "Experts predict what the 2020 housing market will bring," 6 Jan. 2020 Here's what some didn't know Many credit cards are variable rate cards that can go up or down based on the prime rate. — Susan Tompor, Detroit Free Press, "Federal Reserve slashes interest rates for third time in a row: What it means for you," 30 Oct. 2019 The People's Bank of China didn't adjust its one-year loan prime rate (LPR), which stands at 4.15%. — Laura He, CNN, "China's central bank kept a key lending rate on hold," 19 Dec. 2019 His daring trick was to let rates rise as high as the market would bear, and oh boy, did rates skyrocket: The prime rate for bank loans peaked at 21.5% in late 1980. — Chicago Tribune, Twin Cities, "Other voices: High inflation? What’s that? Volcker’s legacy," 12 Dec. 2019

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

9 Feb 2020

Cite this Entry

“Prime rate.” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/prime%20rate. Accessed 20 Feb. 2020.

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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