What Is the Prime Rate Today?

The prime rate today is 7.50%. This is the interest rate that banks and other lenders offer to borrowers with the strongest credit histories, known as “prime borrowers.”

Understanding the prime interest rate is important because financial institutions use it as a baseline to set rates on various types of lending products, including mortgages, lines of credit, personal loans and credit cards. Typically, only the most creditworthy borrowers receive interest rates close to the prime rate.

What is the prime rate?

The prime rate is the benchmark that banks use to set interest rates on their various lending products, which is why it’s also called the prime lending rate. It is a starting point for all other interest rates financial institutions offer.

A prime borrower is considered a low default risk, making a prime loan the highest quality.

The prime rate is influenced by the federal funds rate set by the Federal Reserve through the Federal Open Market Committee (FOMC). The federal funds rate is the interest rate a bank charges when lending money to another bank overnight, and it serves as a basis for rates throughout the economy.

Federal funds rate vs. prime rate

The federal funds rate and the prime rate affect the cost of borrowing and the overall economy, but the two are not the same.

Each bank uses the federal funds rate to determine its own prime rate — also known as the Wall Street Journal prime rate or U.S. prime rate.

At the time of writing, the federal funds rate ranges from 4.25% to 4.50%, and the prime rate is 7.50%.

The prime rate formula

Banks typically use the following formula to determine the prime rate:

Federal funds rate + 3 percentage points = prime rate

As noted above, the federal funds rate today is between 4.25% and 4.50%. The current prime rate is 7.50%, and it is likely the best available rate for the most creditworthy customers on certain products.

How does the prime rate work?

The prime rate is a reference point, or index, that banks and credit unions use to set interest rates, typically by adding a margin based on the borrower’s credit history.

But the prime rate is not guaranteed, even for responsible borrowers. A borrower with strong credit may receive a rate close to prime, while a borrower with weak credit may have a higher margin added to their rate.

If the prime rate is 7.50%, for example, a borrower with a low credit score may have a 5% margin added, which results in a 12.50% interest rate.

Is the prime rate expected to go down?

The prime rate is not expected to go down significantly in the near term. Because of economic uncertainty, the Federal Reserve is currently taking a “wait and see” approach to cutting interest rates.

The next Fed meeting is June 17–18, 2025, but the FOMC isn’t expected to cut rates unless it sees clear signs the economy is weakening, such as rising unemployment. If that happens, the Fed may cut rates to spur economic growth.

Prime rate history

Looking at the prime rate over time can give you an idea of how often and how much it can shift. The prime rate is influenced by various factors, including changes in the federal funds rate and inflation.

For instance, during a recession, like the one brought about by the COVID-19 pandemic, the FOMC usually lowers the federal funds rate to boost the economy. This, in turn, typically lowers the prime rate.

Here is a look at historical prime rates over the last five years:

How does the prime rate affect you?

It’s important to be aware of the prime rate because it can affect how much you pay to borrow money. When the prime rate changes, rates may shift on various financial products, including mortgages, credit cards and personal loans.

If you have a variable-rate loan, you can see your rate and monthly payment shift based on changes in the prime rate. A change in the prime rate may increase or decrease your interest rate, depending on which way the prime rate shifts.

Here are some common ways a prime rate change can affect your financial situation:

• Mortgage rate: If you have an adjustable-rate mortgage (ARM), an increase in the prime rate can result in a higher mortgage rate, which can lead to higher interest charges and monthly payments.
• Home equity line of credit (HELOC): Changes in the prime rate can affect your variable-rate HELOC. When the prime rate goes up, the interest rate on your HELOC may also rise, resulting in higher monthly payments.
• Credit card: An increase in the prime rate can increase your credit card interest rate, leading to higher interest rate charges on transactions going forward. This can make it harder to wipe out credit card debt, especially if you’re only making the minimum payment.
• Small business loan: An increase in the prime rate can lead to a higher interest rate and elevated monthly payments on small business loans.

Does the prime rate affect savings accounts?

While savings account rates aren’t directly tied to the prime rate, they can still be influenced by it. For example, if the prime rate rises, banks may offer higher savings rates, helping you grow your money faster. If the prime rate falls, on the other hand, savings account rates may also drop, leading to smaller interest payments.

If you have a certificate of deposit (CD), you don’t have to worry much about prime rate changes because your interest rate is likely fixed for the entire CD term.

Who sets the prime rate?

The prime rate is set by individual banks. While the Federal Reserve doesn’t have a direct role in setting it, banks largely base their prime rates on the target federal funds rate established at Federal Reserve meetings, which usually occur at least eight times per year.

Financial institutions will generally add 3 percentage points to the federal funds rate to determine the prime rate to offer borrowers. For example, if the federal funds rate is 5%, banks may set the prime rate to 8%.

When did the prime rate change last?

The last change to the prime rate occurred Dec. 19, 2024, when it was lowered from 7.75% to 7.50%.

Frequently asked questions

How often does the prime interest rate change?

While the prime rate can change anytime, it doesn’t do so on a regular schedule. Instead, it adjusts in response to economic factors, such as changes to the federal funds rate or significant downturns. Sometimes, the prime rate may stay the same or shift slightly. In other years, the prime rate may change multiple times.

Does the prime rate affect mortgage rates?

Yes, the prime rate influences mortgage rates, particularly adjustable-rate mortgages (ARMs). Changes to the prime rate can cause rates on ARMs to fluctuate, which can affect your monthly payments. You won’t see an effect if you have a fixed-rate mortgage because your rate will stay the same regardless of changes to the prime rate.

Are all loans affected by the prime rate?

Loans with fixed interest rates aren’t affected by prime rate changes because the rate is locked in for the entire loan term. Let’s say you have a fixed-rate personal loan with an 8% interest rate. If the prime rate goes up, your interest rate will remain at 8%.

What is the highest the prime rate has ever been?

The highest prime rate ever recorded was 21.50%, which was the rate on Dec. 19, 1980.

What is the Canada prime rate?

The prime rate in Canada is currently 4.95%. Similar to the U.S. prime rate, the Canadian prime rate is set by individual banks. Canada’s prime rate is indirectly influenced by the Bank of Canada’s overnight interest rate.