Prime Rate

The prime rate is the interest rate large commercial banks charge their most creditworthy corporate customers, and it moves in lockstep with the Fed funds rate, typically sitting about 3 percentage points above it. Consumer products like credit cards and home equity lines of credit are frequently priced as prime plus a spread.

Because it tracks the Fed funds rate so closely, the prime rate is less a market signal in its own right than a pass-through mechanism: when the Fed moves, the prime rate moves within days, and every loan indexed to it reprices along with it.