What Is The Prime Rate?
What is the prime rate, what is it set to now, and what does it represent? According to about.com the prime rate is defined below:
The prime rate of interest is a rate of interest that serves as a benchmark for most other loans in a country. The precise definition of prime rate differs from country to country. In the United States, the prime rate is the interest rate banks charge to large corporations for short-term loans.
So it’s true that the prime rate is generally the rate banks will charge their best customers (normally large corporations), but more specifically it just acts as a benchmark for the interest rates on their loans. What that means is, it is possible to have loans with rates below prime. The prime rate is important, because with rising interest rates and the continued volatility in the economy, more and more banks are converting their loans to variable rate loans, so that the interest rate risk is born by the consumer, rather than them. (see the article, “Credit Cards and Interest Rates“)
To find out what the prime rate is currently set to, you can always check the Money section of the Wallstreet Journal, or check out an interest rate site, like bankrate.com. A general rule of thumb for prime is that it will always be three percentage points (300 basis points) above the target fed funds rate which is directly set by the Federal Open Market Committee (the FOMC, a unit of “the fed”).
(Somewhat) Similar Posts:
As interest rates continue their upward climb, spenders are starting to take a hit. That might be a good thing, considering last year the...Not just the sub-prime mortgage market, although that's a popular target: ...neither the direct effect of the subprime interest resets, nor the direct financial losses related...Now here's a sad statistic: CNN.com reports, "Out-of-wedlock births in the United States have climbed to an all-time high, accounting for nearly four in 10 babies...Just ask: About a third of credit-card users have pressed for a lower interest rate, according to a September survey by Synergistics Research Corp. More than...