Once a bank changes its prime rate based on the new federal funds rate, it will then start adjusting rates for many of its other lending products in the same direction. And when the federal funds rate and prime rate go down, other rates fall too, making it less expensive to borrow. The prime rate is determined by the current federal funds target rate, which is set by the Federal Reserve. This rate guides the interest rates that banks charge each other when they lend money overnight to meet Fed capital reserve requirements. This combined rate is obtained by way of a market survey and published regularly by The Wall Street Journal (WSJ). You don’t need to monitor the WSJ Prime Rate every day, but depending on your financial goals, you might want to pay attention to the prime rate and its recent trends.
Traditionally, the rate is set to approximately 300 basis points (or 3 percentage points) over the federal funds rate. The Federal Open Market Committee (FOMC) meets eight times per year wherein they set a target for the federal funds rate. When the prime rate goes up, so does the cost to access small business loans, lines of credit, car loans, certain mortgages and credit card interest rates. Since the current prime rate is at a historic low, it costs less to borrow than in the past. “Best in this sense are the borrowers with the least risk of default,” says Jeanette Garretty, chief economist and managing director at Robertson Stephens, a wealth management firm in San Francisco.
Who Gets the Prime Rate?
If the WSJ Prime Rate goes up, your interest rate will go up too. HSH uses the print edition of the WSJ as the official source of the prime rate. Many (if not most) lenders specify this as their source of this index. If the prime rate goes down, that means that it’s becoming cheaper to borrow money.
Historical data for the WSJ prime rate
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- The Wall Street Journal prime rate is considered a trailing economic indicator.
- Changes in the federal funds rate and the discount rate also dictate changes in The Wall Street Journal prime rate, which is of interest to borrowers.
JPMorganChase isn’t responsible for (and doesn’t provide) any products, the repo market and our broken system services or content at this third-party site or app, except for products and services that explicitly carry the JPMorganChase name. In the United States, the prime rate is traditionally established by the Wall Street Journal.[2] Every major bank sets its own prime rate. When 23 out of the 30 largest US banks change their prime rate, the Journal publishes a new prime rate.
On the other end of the spectrum, a bank’s very best borrowers may be able to negotiate lower than the prime interest rate. This kind of negotiation happened more frequently in the 1980s, Garretty notes, when interest rates were much higher. Lenders would try to attract “blue chip” borrowers by offering interest rates lower than the prime rates.
Lending Products That Utilize the Prime Rate
It’s published each day by the Wall Street Journal, and it is an important method for people to keep track of the interest rates that banks are charging for loans and credit lines. Since individual consumers do not have the same resources, banks typically charge them the prime rate plus a surcharge based on the product type they want. A credit card rate might be the prime rate plus 10%, for instance.
The prime rate, as reported by The Wall Street Journal’s bank survey, is among the most widely used benchmark in setting home equity lines of credit and credit card rates. It is in turn based on the federal funds rate, which is set by the Federal Reserve. The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages. Indexed rate products often use the prime rate as the base rate of interest with a margin or spread determined by the borrower’s credit profile. The prime rate is commonly utilized in variable rate products as an indexed rate, since it is widely recognized and followed across the industry.
The federal funds rate is the primary tool that the Federal Open Market Committee uses to influence interest rates and the economy. Changes in the federal funds rate and the discount rate also dictate changes in The Wall Street Journal prime rate, which is of interest to borrowers. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. The 11th District Cost of Funds is often used as an index for adjustable-rate mortgages.
Some smaller banks will use a larger bank’s prime as a reference for pricing loans, but most use the Wall Street Journal version. That’s why seeing the impact of a prime rate hike might not be immediately obvious. However, over time, the prime rate does push consumer rates in the same direction. By keeping an eye on the prime rate trends, you can get a sense of how expensive it will be to borrow urban towers scalping strategy and you can plan around any changes. Most base it off the national average listed under the WSJ prime rate, but some could charge more or less depending on their goals. Many variable accounts will state that your variable APR is a certain percentage above the prime rate.
If the prime rate goes up, that means that banks are charging higher interest rates, and so the interest rates on your credit card or adjustable rate mortgage might go up too, making it more expensive to borrow. The Wall Street Journal Prime Rate (WSJ Prime Rate) is a measure of the U.S. prime rate, defined by The Wall Street Journal (WSJ) as “the base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks”. It should not be confused with the discount rate set by the Federal Reserve, though these two rates often move in tandem. “This is unlike other rates that move daily/weekly according to short term financial market, supply and demand conditions,” says Garretty.
Banks usually only charge the prime rate to large, corporate customers with lots of financial resources. That’s because they have more money and assets to pay the loans back. The prime rate is defined by The Wall Street Journal (WSJ) as “The base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks.” It is not the ‘best’ rate offered by banks. The WSJ Prime Rate is affected by the federal funds rate and is an indicator of the overall cost of money for banks and lenders, and of the overall functioning of financial markets. But the prime rate is only one factor among several that determine how much you’ll pay for loans.
If you want to pay off credit card debt, you should be aware of what interest rate you’re paying on that debt. If you have some cash savings in the bank, you might want to look for a higher-yielding savings account. The overall “cost of money” and your costs of borrowing (or your yield as a saver and investor) are affected by the prime rate. Another reason why the prime rate matters is because consumers’ borrowing costs are affected by their credit ratings. If the prime rate goes up, your costs of borrowing will go up, too – and the costs will likely be significantly higher for people who have lower credit scores. The WSJ Prime Rate is essentially the base interest rate that banks are charging borrowers, and it’s referenced by lenders and borrowers alike.
Because most consumer interest rates are based upon the Wall Street Journal Prime Rate, when this rate changes, most consumers can expect to see the interest rates of credit cards, auto loans and other consumer debt change. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site.
Note that certain lending products, like fixed rate mortgages and some student loans, are based on measures like SOFR and are less tied to the movement of the prime rate. The prime rate is one of the main factors banks use to determine interest rates on loans. If you’re in the market for a new variable rate mortgage or a personal loan, understanding the prime rate and how it works can give you a better grasp on how much you’ll pay and the best time to get a loan. Borrowers with variable rate products will typically want to follow the prime rate, and specifically the WSJ prime rate, since it is published publicly.
Products utilizing a prime rate can include mortgages, home equity lines of credit and loans, and car loans. Typically a prime rate is most broadly used in variable credit products with the prime rate serving as the indexed rate. 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. Many credit cards with variable interest rates have their rate specified as the prime rate (index) plus a fixed value commonly called the spread. 10 reasons bitcoin is a terrible investment If a borrower has a variable rate loan or credit card, the terms of the variable rate changes will be disclosed in their credit agreement.