What It Means
The prime rate is the interest rate that commercial banks charge their most creditworthy corporate customers. It serves as a benchmark for many consumer lending products, including credit cards, HELOCs, and adjustable-rate mortgages. The prime rate is directly influenced by the Federal Reserve's federal funds rate - when the Fed raises or lowers rates, the prime rate typically moves in tandem. Most credit card APRs are expressed as 'prime rate plus a margin' (e.g., prime + 15%). As of 2026, the prime rate fluctuates based on Fed monetary policy. Understanding the prime rate helps you anticipate changes in your variable-rate credit products.
Frequently Asked Questions
How does the prime rate affect credit cards?
Most credit card APRs are based on the prime rate plus a margin. When the prime rate increases, your credit card APR increases by the same amount, making carried balances more expensive.
Who sets the prime rate?
The prime rate is set by individual banks, but it closely follows the Federal Reserve's federal funds rate. When the Fed adjusts its target rate, banks typically adjust the prime rate accordingly.