What is the prime rate today?

However, for longer fixed-rate loans like student loans or 30-year, fixed-rate mortgages, the 10-year Treasury yield is a better index of rate movements than the prime rate or the federal funds rate the prime rate is based on. Interest rates for these longer-term loans track more closely to movements in the 10-year Treasury yield.

We’ll explain more about what the prime rate is and why it matters to you.

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What exactly is the prime rate?

The prime rate is a baseline interest rate that U.S. banks use to price their products. Also called a “reference” or “base” rate, the prime rate isn’t advertised for loans, but banks use the prime rate to set their own pricing. The prime rate is generally calculated by adding 3 percentage points to the federal funds rate.

The prime rate plays a key role in determining the interest rates you’ll pay on short-term financial products, including:

• Credit cards.
• Small business loans.
• Auto loans.
• Adjustable-rate mortgages (ARMs).
• Home equity lines of credit (HELOCs).

Factors impacting the prime rate

The WSJ prime rate is determined by the nation’s 10 largest commercial banks based on a weekly survey. These institutions take into account several macroeconomic factors when setting the prime rate, including:

• The federal funds rate. The federal funds rate is set by the Federal Reserve and is the interest rate banks charge each other for overnight borrowing. The Fed cut its benchmark interest rate in late 2024 at its September and November meetings, after previously hiking it 11 times in 2022 and 2023.
• The economy. Economic conditions heavily impact the prime rate, because economic health (the job market, GDP, consumer prices and consumer spending) plays a major role in people’s decisions on whether to borrow and how much. When the economy is strong, banks tend to increase the prime rate to encourage borrowing, and vice versa.
• Inflation. Inflationary pressures also affect the prime rate. When inflation runs hot, banks are more likely to raise the prime rate to offset rising borrowing costs. When inflation cools, as we’re seeing now, banks tend to lower the prime rate.

How the prime rate is connected to the federal funds rate

The prime rate and the federal funds rate are closely intertwined. The prime rate is typically set 3 percentage points above the federal funds rate. So when the Fed hikes its rate, the prime rate also goes up, and vice versa, says Lawrence Yun, chief economist with the National Association of REALTORS.

“The prime rate is priced off whatever the Fed funds rate [plus adding] 3 percentage points to it,” Yun says. “That will be the interest rate for their best creditworthy clients who are borrowing money for a short duration.”

How the prime rate affects you

When the prime rate increases, expect to pay higher annual percentage rates (APRs) on credit cards, auto loans, small business loans and personal loans. The prime rate also impacts loans with variable interest rates, such as ARMs (adjustable-rate mortgages) and HELOCs.

Borrowers with an ARM may sometimes be hit with higher payments than they can afford after the loan resets from its initial fixed rate. In a rising-rate environment, payments can become unpredictable, so it’s important to understand what you’re getting into with those loan terms, says Danielle Hale, chief economist with Realtor.com

“When the prime rate adjusts up or down these rates will also often move, generally with a delay, depending on the terms of the loan agreement,” Hale says.

She added: “If it’s been a while since you took on the debt and you don’t remember the details about how your rate will adjust, it also can be a good time to ask to better understand how your payment may change as rates adjust.”

Contrary to popular belief, the federal funds rate (and the prime rate) do not directly impact mortgage rate pricing on fixed-rate loans, Yun of NAR explains.

Learn more: How the federal funds rate affects mortgage rates.

“Mortgage rates cannot be controlled by the Federal Reserve, just like the Federal Reserve cannot control the grocery prices,” Yun says. “It’s based on the supply and demand of the market forces,.”

Those supply and demand forces—how much mortgage credit is available for potential lending and borrower demand—drive mortgage rates more directly, Yun notes.

Learn more: Will mortgage rates decrease in 2025?

Historical chart of the prime rate

The current prime rate is 8%, down from 8.5%, where it stood for the second half of 2023 and a large part of 2024.

There’s no cap on how high prime rates can go but, historically, the prime rate is running much higher today than it has in nearly 20 years as the economy continues to improve following the COVID-19 pandemic. The prime rate has plunged notably twice in recent history—once right after the Great Recession in 2007 and again after the pandemic in 2020 and 2021—hitting rock-bottom levels before rising again.

The highest-ever recorded U.S. prime rate reached 21.5% on Dec. 19, 1980, according to data from the Board of Governors of the Federal Reserve System. Below is a historical chart from the St. Louis Fed showing how the prime rate has behaved over time.

The takeaway

The prime rate is closely tied to movements in the federal funds rate, affecting borrowing costs for short-term loans.

If you’re thinking of taking out a new credit card, an auto loan, a small business loan or an ARM or HELOC with a variable rate, pay close attention to movements in the Fed rate. When the Fed announces a cut or hike to the federal funds rate, prime rates—and short-term borrowing costs—can be expected to follow the Fed’s lead.

That said, if you’ve already locked in a fixed-rate mortgage, you don’t have to worry about prime rate fluctuations affecting your loan.

Learn more: 3% mortgage rates are a blessing and a curse for some homeowners.

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