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Prime Rate refers to the interest rate charged by banks on loans lent to their most credit worthy customers. Prime Rate is also known as Prime Lending Rate. There are different indices that report on the prime rate and one of most commonly referred is the Prime Rate index is the Wall Street Journal’s Prime Rate (WSJ Prime Rate). The Wall Street Journal defines WSJ Prime Rate as "U.S. prime rate is the base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks ".
The WSJ Prime Rate is primarily dependent on the Fed Funds rate set by the Federal Open Market Committee (FOMC). The Fed Funds rate affect the cost of borrowing of the banks which is passed on to borrower’s in the form of interest rate on the loans. Usually the WSJ Prime Rate is 3% over the Fed Funds Rate.
The WSJ Prime Rate does not change frequently. The changes are usually followed by changes in the Fed Funds Rate. To obtain the current and historical Prime Rates visit the Market Data Center section of the Wall Street Journal website.
The WSJ Prime Rate is most widely used index for setting rates on home equity lines of credit (HELOC).
Updated: Mar 01, 2021