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Prime Rate |
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The Prime rate is the interest rate that banks charge each other when they borrow money amongst themselves as well as the rate that they charge their most favored commercial borrowers who are seeking prime rate loans.
The prime rate is also one of the most frequently used index rates for determining the new base interest floor for variable interest rate credit cards, loans, mortgages and other types of credit.
Normally the Prime Rate is set somewhere around 3 percentage points above the federal funds rate which is set by the Federal Open Market Committee (FOMC), a part of the U.S. Federal Reserve system.
The Prime Rate that is published in the Wall Street Journal, called the WSJ Rate, is the one that most lenders refer to when they are talking about the Prime Rate.
When the Prime Rate rises, interest rates go up. When the Prime Rate falls, so do interest rates. As a rule of thumb, whenever 23 out of 30 of the nations' largest banks change their individual prime rates, the WSJ rate is updated with what is called the "composite prime rate" which reflects the average prime rate being charged by each of the banks.
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Credit Card Definitions > N - Z > Prime Rate
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