Lenders typically base their rate spreads for variable rate products on a borrower’s credit profile. Therefore borrowers with a higher credit score can receive a lower margin while borrowers with a lower credit score will receive a higher margin. In a variable rate credit product, the margin remains the same over the life of the loan; however, the variable rate is adjusted when there is a change in the underlying indexed rate. The prime rate is also important if you have any debt with a variable interest rate, where the bank can change your rate. This includes credit cards as well as variable rate mortgages, home equity loans, personal loans and variable rate student loans. If the prime rate goes up, the bank could end up charging you a higher interest rate so your monthly payment on variable debt would increase.

The federal funds overnight rate serves as the basis for the prime rate, and prime serves as the starting point for most other interest rates. The WSJ prime rate is one of the market’s leading sources for comprehensive average prime rate reporting. The WSJ prime rate gets its name from The Wall Street Journal’s practice of polling the 10 largest U.S. banks to see what their prime lending rate is. When seven or more of the 10 banks polled change their prime rate, The Wall Street Journal publishes a new prime rate.

The print edition of the WSJ is generally the official source of the prime rate. The Wall Street Journal prime rate is considered a trailing economic indicator. Many (if not most) lenders specify this as their source of this index and set their prime rates according to the rates published in the Wall Street Journal.

Historical data for the WSJ prime rate

As you can see from the chart below, the prime rate has still not returned to the levels it was at before the Covid-19 recession, which were already elevated. In fact, since the end of the Covid-19 recession, the prime rate has steadily risen to the highest level it’s been at over the last 20 years. The highest prime rate was 21.5%, reached on December 19, 1980. To help make our communities better for our neighbors, our friends, our customers, and ourselves, we need to be part of the change. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

1. The WSJ Prime Rate is essentially the base interest rate that banks are charging borrowers, and it’s referenced by lenders and borrowers alike.
2. Another reason why the prime rate matters is because consumers’ borrowing costs are affected by their credit ratings.
3. If the bank’s prime rate increases to 4.25%, their interest rate would increase to 20.24%.
4. Banks can lend all types of products to borrowers at their prime rate.

As of May 20, 2024, the current prime rate is 8.50%, according to The Wall Street Journal’s Money Rates table. This source aggregates the most common prime rates charged throughout the U.S. and in other countries. JPMorganChase’s website terms, privacy and security policies don’t apply to the site or app you’re about to visit. Please review its website terms, privacy and security policies to see how they apply to you.

Generally, the rate is dictated by changes from the Federal Reserve’s Federal Open Market Committee, which meets every six weeks and reports on the level of the federal funds rate. The WSJ prime rate provides a gauge for the prime rate at banks across the industry. The WSJ prime rate has historically been approximately 3% higher than the federal funds rate. Thus, the rate is heavily influenced by the Federal Reserve’s monetary policies. Changes in the prime rate are highly correlated with changes in the federal funds rate.

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Banks also take into account your creditworthiness—the more likely you are to pay them back, the lower swing trading strategies that work the rate they would charge and vice versa. The prime rate is the interest rate banks charge their best customers for loans. That’s because the WSJ Prime Rate is a key indicator of the cost of consumer borrowing. If you have a credit account, particularly a variable one, the interest rate you pay is affected by the prime rate. The WSJ prime rate has historically fluctuated substantially over time. In Dec. 2008, it reached a then low of 3.25% after being reported at 9.5% in the early 2000s.

Wall Street Journal prime rate

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The prime rate typically changes a day or so after a change in the federal funds rate. The U.S. economy is made up of billions of little everyday moments of consumers making decisions and responding to incentives, all trying to maximize their wealth and happiness. The WSJ Prime Rate is an important indicator of the cost of money. Understanding the basics of how interest rates work can help you make better decisions in your financial life.

Who Gets the Prime Rate?

When a majority of the banks surveyed by WSJ increase their prime rate, then it is a good indication that variable rates are rising. “Decisions by a bank’s asset and liability committee will ultimately determine where those other rates will settle,” says Garretty. For example, if one bank wants more credit card business on their books while another does not, they will quote different credit card rates, even though they are working off the same prime rate. The prime rate is the interest rate that commercial banks charge to their most creditworthy customers.

Generally, a bank’s prime rate is the lowest rate it charges on lending to its highest credit quality customers (and also to other banks). Banks can lend all types of products to borrowers at their prime rate. They also use the prime rate as an indexed rate for variable credit products.

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Click on the links below to Best forex signals find a fuller explanation of the term. David Rodeck specializes in making insurance, investing, and financial planning understandable for readers. He has written for publications like AARP and Forbes Advisor, as well as major corporations like Fidelity and Prudential. That added a layer of expertise to his work that other writers cannot match. “Rates began to rise in 2015 or so and continued to rise until March of 2020 due to Covid-19.

It’s usually the how do currency exchange rates work 2020 lowest interest rate banks will charge and is a benchmark to determine interest rates for other products, like lines of credit, credit cards and small business loans. For one example of a prime rate’s influence, consider a Bank of America credit card borrower with a credit card balance that is subject to a variable annual percentage rate. The borrower’s margin is 15.99% plus the indexed rate, which is based on the bank’s prime rate. For the borrower, this means that if the prime rate is 3.25%, their interest rate will be 19.24%. If the bank’s prime rate increases to 4.25%, their interest rate would increase to 20.24%.