What Is The Prime Rate?

August 2, 2022

Interest rates are on everyone’s mind right now. Rising interest rates don’t just affect those looking to buy real estate but also borrowers looking to get an auto loan or credit card.

The prime rate is the interest rate major banks offer to their best, least risky, borrowers. The prime rate usually follows the fed funds rate in lock step. Typically, there is a spread/margin of 3 points between the fed funds rate and prime rate. With the Federal Reserve increasing the fed fund’s rate for a fourth time in as many months, the prime rate now sits at 5.5%. Thus, the fed funds rate is currently sitting at 2.5%.

Based on the last 7 years of data, the prime rate is equal to the current high set back on December 20th of 2018 of 5.5%. Since March of 2022 it has risen 2.25 points from 3.25%.

Below is a link to a wonderful article written by Rose Shilling, Senior Editor at Money Wise detailing what these two rates are and how they affect you. Some of the information used in our article originated from Rose’s. The article was written in June before the Fed’s latest increase to 2.5%.

https://moneywise.com/loans/personal-loans/what-is-the-prime-rate

 



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