What does prime rate mean? This question is about Interest Rates Guide

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What does prime rate mean?

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This question is about Interest Rates Guide

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WalletHub, Financial Company

@WalletHub • 03/04/24

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The prime rate is the interest rate that commercial banks charge their most creditworthy customers, typically large corporations. It serves as a benchmark for many other interest rates in the broader economy. The prime rate is influenced by the federal funds rate, which is set by the Federal Reserve.

The prime rate is often defined as the federal funds rate plus a certain percentage. Commercial banks use the prime rate as a reference point when setting interest rates for various financial products, such as credit cards, and loans. Generally, the prime rate is considered a reliable indicator of the overall health and direction of interest rates in the economy.

Changes in the prime rate can have a cascading effect on other interest rates, impacting the cost of borrowing for businesses and individuals. When the prime rate increases, it can lead to higher interest rates on loans and credit, potentially affecting consumer spending and business investments. Conversely, a decrease in the prime rate may make borrowing more affordable and stimulate economic activity.

This answer was first published on 07/09/20 and it was last updated on 03/04/24. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

How do I find the interest rate on my credit card?

To find the interest rate on your credit card, look at your cardmember agreement and your monthly credit card statements. Your interest rate will be there in the form of an annual percentage rate (APR). But as “annual” implies, an APR is the cumulative interest rate for a whole year, which isn’t all that helpful for calculating actual interest charges from day to day or month to month.

You can figure your daily interest...

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What is a variable interest rate on a credit card?

A variable interest rate on a credit card is an interest rate that goes up and down with the index rate it’s tied to, which is most often the Prime Rate. The Prime Rate is the interest rate banks give to the most creditworthy borrowers. The Prime Rate goes up and down, too, usually based on adjustments to the Federal Funds Rate, which changes based on the economic climate. Most credit cards today have a variable interest...

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