The benchmark interest rate that US banks charge their most creditworthy customers, closely tied to the federal funds rate and used as an index for HELOCs and ARMs.
Full Definition
The prime rate is set by major US banks as their benchmark short-term lending rate. It's directly tied to the federal funds rate — historically, prime is the fed funds rate plus 3 percentage points. When the Federal Reserve raises or lowers the fed funds rate, the prime rate typically moves immediately. For mortgage borrowers, the prime rate matters most if you have a HELOC (most HELOCs are indexed to prime) or certain adjustable-rate mortgages. It's less relevant for fixed-rate mortgages, which are more closely correlated to 10-year Treasury yields. As of any given date, you can find the current prime rate in the Wall Street Journal's money rates table.
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