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| Prime rate, fed funds, COFI |
| By Bankrate.com |
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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 fed 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.
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| Prime rate, fed funds, COFI |
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Ratings methodology
What's included? The fed funds rate
is the primary tool that the Federal Open Market Committee uses
to influence interest rates and the economy. Changes in the fed
funds rate have far-reaching effects by influencing the borrowing
cost of banks in the overnight lending market, and subsequently
the returns offered on bank deposit products such as certificates
of deposit, savings accounts, and money market accounts. Changes
in the fed 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.
Many small business loans are also indexed to the Prime rate. The
11th District Cost of Funds is often used as an index for adjustable-rate
mortgages.
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