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- The prime rate is the interest rate that banks charge their most creditworthy clients.
- The prime rate today is 7.75% as of November 8, 2024.
- Commercial banks use the prime rate to calculate the interest on consumer loans, credit cards, and mortgages.
The prime rate, or the prime lending rate, represents the lowest interest rate banks and many of the best online brokerages offer to their most creditworthy customers. While it's typically reserved for large corporations and high-net-worth individuals, it is a benchmark for other interest rates.
Here's the prime rate today in 2024 and the Federal Reserve's influence on today's prime rate.
Understanding the prime rate
As of November 8, 2024, the prime rate is 7.75%.
The prime rate is a benchmark interest rate used to determine the interest charged on loans. Like other interest rates, it compensates lenders for the risks of extending credit. However, the prime rate is typically reserved for the most creditworthy borrowers, such as large corporations and high-net-worth individuals.
Just as the federal funds rate serves as the basis for the prime rate, the prime rate serves as the starting point for most consumer banking products. It acts as a precursor of the state of the economy by reflecting how easy it is to borrow, whether the government is encouraging or discouraging spending, and how confident banks feel about loaning money.
Only stable businesses with the highest credit ratings qualify for the prime rate, as they're the ones that pose the least risk of defaulting on their loans.
"It is set by banks off of the federal funds rate, currently set at 4.50% to 4.75%, and has historically been 3% above that rate," says Eric P. Niedermeyer, a chief investment officer of Tanner Creek Capital at Stifel Independent Advisors. "The best and most creditworthy customers are usually corporate clients."
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How often the prime rate changes
Despite being a viable or floating interest rate, the prime rate does not regularly change. Rather, banks adjust it according to economic and business cycle shifts. The prime rate may not change for years or may change several times within one year, especially in economically turbulent times.
Since they're based on the federal funds rate, prime rates also reflect the state of the economy. During a recession, prime rates are generally lower. For example, during the Great Recession the prime hit around 3.25%.
"The prime has averaged 5.42% over the last 50-plus years but has been as high as 21.50% in 1980," says Niedermeyer.
The latest prime rate change is in response to the Fed's latest rate cut in 2024. Interest rates were cut by a total of 75 basis points in 2024.
What is the prime rate vs. the Fed rate?
The government does not set prime rates. Instead, the prime closely follows the federal funds rate that the Federal Reserve sets. As of November 7, 2024, the federal funds rate is 4.75%, with the federal fund target rate being 4.50% to 4.75%. The Federal Open Market Committee recalculates this rate eight times yearly (roughly every six weeks) based on market conditions.
The Fed sets and adjusts the federal funds rate to keep the US economy on an even keel between recession and over-expansion. When economic growth slows down or starts to recede, the federal funds rate is lowered to spur economic growth. On the other hand, when the economy grows too fast, the Fed raises the rate to stave off inflation.
Commercial banks use the federal funds rate when charging each other for overnight loans. In turn, these banks use the same rate as the starting point in setting the prime rate for their best-qualified clients. Banks generally adjust the prime rate roughly 3% above the federal funds rate (3+4.75 = 7.75). However, some banks set their lending rates to five percentage points higher.
How does the prime rate affect you?
When the prime rate changes, the effects ripple out to regular borrowers even though only the most stable corporations with sterling credit scores generally qualify. The prime rate can impact rates on personal loans, small business loans, credit cards, mortgages, and more.
Of course, various other factors also impact your interest rate, such as your credit score, risk profile, type of loan, location, and the length of time it will take you to repay.
Here's how the current prime rate impacts personal loans, mortgage loans, and everyday debt.
Personal and small business loans
Fluctuations in the prime rate can reflect how tough or relaxed lenders' financing standards and requirements are. When the prime rate is low, getting a loan is easier. When the prime rate is high, it often makes borrowing a lot more challenging.
For fixed-rate loans, your interest rate will be based on the prime rate at the start of the loan and will not change due to fluctuating prime rates. Variable-rate loans, on the other hand, will go up and down based on the prime rate.
Credit cards
Most credit cards have variable interest rates set several percentage points above the prime. For example, your interest rate may be the prime plus 13.99%.
As the prime rate changes, your card's annual percentage yield (APR) will increase or decrease within a billing cycle or two.
"The prime rate is used to set the rates for loans and credit card balances, plus a risk factor increase," Niedermeyer says. "Credit cards would be the prime rate plus 10% to 15% as they are considered risky for some borrowers."
Mortgages
The prime most directly affects adjustable-rate mortgages. As the prime rate fluctuates, so should your adjustable rate at the annual reset. The impact is greatest on shorter-term loans.
For example, if you have a 30-year mortgage, it might not move much when the prime rate decreases. However, you may still take advantage by opting to refinance your mortgage at a lower rate instead.
Auto Loans
The prime rate does not directly impact auto loans, but generally, it results in higher auto loan rates, making it more expensive for lenders to borrow money. Higher rates also raise the price of new and used cars.
Investment accounts
The prime rate can indirectly impact the performance of your investments, with higher interest rates usually hurting the market. High interest rates make borrowing more expensive, decreasing cash flow and stock price declines.
However, some market sectors, like the financial industry, often benefit from high interest rates. Financial institutions like banks, brokerages, and insurance companies have increased cash flow since borrowers are charged more.
What is the Wall Street Journal prime rate?
While many banks set their prime rate according to the federal funds rate, there's no universal prime rate. When you see a reference to "the prime rate," it usually reflects an average rate across financial institutions.
That said, the Wall Street Journal's prime rate is one of the most commonly cited averages — the "official source," so to speak. The WSJ surveys 10 of the largest US banks and publishes a consensus prime based on their rates. The Journal reports this average prime rate daily, even if it hasn't changed.
The WSJ prime rate is 7.75% as of September 19, 2024. It alters when three-quarters of these financial institutions adjust their rates.
Historical prime rate trends analysis
| Date of rate change | Rate |
| November 8, 2024 | 7.75% |
| September 19, 2024 | 8.00% |
| July 27, 2023 | 8.50% |
| May 3, 2023 | 8.25% |
| March 22, 2023 | 8.00% |
| February 1, 2023 | 7.75% |
| December 14, 2022 | 7.50% |
| November 2, 2022 | 7.00% |
| September 21, 2022 | 6.25% |
| July 27, 2022 | 5.50% |
| June 15, 2022 | 4.75% |
| May 4, 2022 | 4.00% |
| March 16, 2022 | 3.50% |
| March 15, 2020 | 3.25% |
| March 3, 2020 | 4.25% |
| October 30, 2019 | 4.75% |
| September 18, 2019 | 5.00% |
| July 31, 2019 | 5.25% |
Strategies for navigating changes in the prime rate
When the prime rate changes, it affects individuals' and businesses' savings rates and ability to borrow. The best ways to prepare for changing prime rates are by staying informed on the state of the economy and updates from the Federal Reserve. You'll also get the best rates by comparing offers from multiple lenders, maintaining a good credit score, and managing your debt.
Here are some strategies for managing finances with fluctuating prime rates
- Lock in a fixed rate: The ideal time to take out a fixed-rate loan (like a mortgage or car loan) is when the prime rate is low, especially if the prime is expected to rise. A variable loan may be better if the rate is likely to fall since you might get a more desirable interest rate later.
- Refinance higher interest rate loans: Consider refinancing if you have a variable-rate loan. Variable-rate loans fluctuate with the prime rate, so even if your original borrowing rate was low, it may spike later on. You can get lower monthly payments by refinancing your loan.
- Pay down high-interest debt: High-interest debt, like credit card debt, can drag you down over time and be especially harmful when the prime rate is high. To avoid accruing even more interest, try to consult existing high-interest debt.
- Rebalance your investment portfolio: The prime rate can indirectly impact the stock market. To manage risk in your investment portfolio, diversify your asset allocation and regularly rebalance to ensure you're on track to reach your goals.
Prime rate FAQs
The prime rate changes when banks adjust their rates in response to economic health or a shift in the federal funds rate set by the Federal Reserve. Depending on economic conditions, the prime rate may not change for years or multiple times in one year.
The prime rate can affect many variable-rate loans and lines of credit. However, fixed-rate loans are only affected by the prime rate when they are originally borrowed, as fixed-rate loans don't fluctuate with the changing prime rate. Remember that other factors, like credit cards and existing debt, also affect loan rates.
The prime rate may predict broader economic trends, such as higher borrowing rates and market liquidity. Financial institutions often use the prime rate to determine the appropriate interest rates they should charge people.
As of November 8, 2024, the prime rate is currently 7.75%. It dropped for the second time this year following an interest rate of 25 basis points.
