Prime Rate

Prime Rate Meaning:
In deposit terminology, the term Prime Rate refers to the benchmark lending rate that United States commercial banks charge their most credit worthy customers for loans. The Prime Rate is also known as the prime lending rate.

Prime Rate Example:
For example, the Prime Rate in the United States is based on the Federal Reserve’s Fed Funds rate, i.e. the rate at which the Federal Reserve lends its member banks money. The Prime Rate is generally three percentage points above the Fed Funds rate. The Fed Funds rate is currently 0.25%, making the Prime Rate effectively 3.25% where it has been since December of 2008. Many banks use the Prime Rate as the basis for lending, with the most credit worthy customers getting loans at or slightly above the Prime Rate. While other less credit worthy borrowers get the Prime Rate plus percentage points above the Prime Rate.