Prime rate is a term applied in many countries to a reference interest rate used by banks. The term originally indicated the rate at which banks lent to their most favored customers, though this is no longer always the case. Some variable interest rates may be expressed as a percentage above or below prime rate. Image File history File links Gnome-globe. ... An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... For other uses, see Bank (disambiguation). ...

Use in different banking systems

USA and Canada

Historically, in North American banking, the prime rate was the interest rate although this is no longer the case. The prime rate varies little among banks, and adjustments are generally made by banks at the same time, although this does not happen with great frequency. The prime rate is currently 6.00% in the United States (since January 30, 2008), according to data published by The Wall Street Journal Online and the Federal Reserve Bank.^[1] Canadian prime rate is currently 5.25% according to data published by Bank of Canada. For other uses, see Bank (disambiguation). ... is the 30th day of the year in the Gregorian calendar. ... 2008 (MMVIII) will be a leap year starting on Tuesday of the Anno Domini (common) era, in accordance with the Gregorian calendar. ... Federal Reserve Districts The United States Federal Reserve System consists of twelve Federal Reserve Banks, each responsible for a particular district, and some with branches. ... For the defunct commercial bank, see Bank of Canada (commercial). ...

Overview

Historical chart of the effective Federal Funds Rate

In the US, the prime rate runs approximately 300 basis points (or 3 percentage points) above the federal funds rate, the interest rate that banks charge to each other for overnight loans made to fulfill reserve funding requirements. (The Federal funds rate plus a much smaller increment is frequently used for lending to the most creditworthy borrowers today, as is LIBOR, the London Interbank Offered Rate.) The Federal Open Market Committee (FOMC) meets eight times per year wherein they set a target for the federal funds rate. Other rates, including the Prime Rate, derive from this base rate. United States may refer to: Places: United States of America SS United States, the fastest ocean liner ever built. ... A basis point (often denoted as bp, bps or ; rarely, permyriad) is a unit that is equal to 1/100th of 1%. It is commonly used to denote the change in a financial instrument, or the difference (spread) between two interest rates; although it may be used in any case... The federal funds rate is the interest rate at which private depository institutions lend balances (federal funds) at the Federal Reserve to other depository institutions overnight. ... London Interbank Offered Rate (or LIBOR, pronounced LIE-bore) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). ... The Federal Open Market Committee (FOMC), a component of the Federal Reserve System, is charged under U.S. law with overseeing open market operations in the United States, and is the principal tool of US national monetary policy. ...

The most commonly recognized prime rate index is the Wall Street Journal Prime Rate (WSJ Prime Rate), published in the Wall Street Journal. Unlike other indexed rates, the prime rate does not change on a regular basis; rather, it changes whenever banks need to alter the rates at which borrowers obtain funds. The WSJ defines the prime rate as "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks." // The Wall Street Journal Prime Rate (WSJ Prime Rate) is defined by The Wall Street Journal (WSJ) as The base rate on corporate loans posted by at least 75% of the nations 30 largest banks. ... The Wall Street Journal is an influential international daily newspaper published in New York City, New York with an average daily circulation of 1,800,607 (2002). ...

When 23 out of 30 of the United States' largest banks change their prime rate, the WSJ prints a composite prime rate change.

Uses

The Prime Rate is used often as an index in calculating rate changes to adjustable rate mortgages (ARM) and other variable rate short term loans. It is used in the calculation of some private student loans. Many credit cards and home equity lines of credit with variable interest rates have their rate specified as the prime rate (index) plus a fixed value commonly called the spread. This article needs to be cleaned up to conform to a higher standard of quality. ... This article needs cleanup. ... Look up credit card in Wiktionary, the free dictionary. ... Home Equity Line of Credit (HELOC) differs from a lump sum mortgage in that the highest loan limit amount does not need to be received by the borrower upon the close of escrow. ...

References

1. ^ Federal Reserve Statistical Data. Federal Reserve.

External links

• PrimeRateValue.com - View the current Prime Rate
• Money Cafe Prime Rate including historical data
• Prime Rate Changes History: Dates and Rates - Fed prime rate, not WSJ prime rate