Jun 23 2010

What is the prime rate and what makes it fluctuate?

Category: Finance


The prime rate or prime lending rate is the short term interest rate that is determined by the Federal Reserve based on a range of economic issues. Banks or other lending institutions that provide loans use the Prime Rate as a benchmark and then add a spread to it based on the amount of risk related with the borrower. The prime rate is calculated by adding 300 basis points or 3% to the federal funds target rate. Fluctuations to the federal funds target rate are based on meetings by the Federal Open Market Committee. The Fed will meet bi-quarterly to discuss the incentives of raising or lowering interest rates. As of today June 23, 2010 the U.S. Prime Rate is 3.25 so the federal funds rate is .25.

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