Prime Rate
The prime rate is a benchmark interest rate that U.S. banks use as a reference for setting rates on consumer loans, credit cards, and some adjustable-rate mortgages. It's typically set at 3 percentage points above the Federal Reserve's federal funds rate. When the Fed raises or lowers rates, the prime rate moves in lockstep.
The prime rate is published daily in The Wall Street Journal as the consensus rate from major U.S. banks. As of early 2024, with the federal funds rate target at 5.25–5.50%, the prime rate stood at 8.50%. This directly affects home equity lines of credit (HELOCs), which are typically priced as Prime + a margin (e.g., Prime + 0.5% = 9.0%).
Fixed-rate mortgages are not directly tied to the prime rate—they're more closely tied to the 10-year Treasury yield. However, ARM (adjustable-rate mortgage) indexes like SOFR (Secured Overnight Financing Rate) are influenced by the same Federal Reserve policy that moves the prime rate, so there's an indirect relationship.
For borrowers, the prime rate matters most if you have a HELOC, a business line of credit, or a credit card with a variable rate. When the Federal Reserve raises rates to combat inflation, your HELOC payment increases automatically—which is why fixed-rate second mortgages can be a smarter choice in rising-rate environments.
Key Takeaway
The prime rate is a benchmark interest rate that U.S. banks use as a reference for setting rates on consumer loans, credit cards, and some adjustable-rate mortgages. It's typically set at 3 percentage points above the Federal Reserve's federal funds rate. When the Fed raises or lowers rates, the prime rate moves in lockstep.
Related Terms
Frequently Asked Questions
For fixed-rate mortgages, not directly—those track Treasury yields. For HELOCs and variable-rate loans, yes. Your HELOC rate typically adjusts monthly based on the current prime rate.
The prime rate isn't set by government decree. It's a convention—typically Fed funds rate + 3%—that major banks follow. The Wall Street Journal surveys the largest banks and publishes the consensus.
Directly. If the Fed raises rates by 0.25%, the prime rate rises 0.25%, and your HELOC interest rate rises 0.25% at the next adjustment date. On a $100,000 balance, that's about $21 more per month.
Compare Mortgage Rates Today
Now that you know what prime rate means, see how it affects your bottom line.
See Rates →