What is the prime rate? The prime rate is an important index used by banks to set rates on many consumer loan products, such as credit cards or auto loans. Many small business loans are also indexed to the Prime rate. It 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.
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|This week||Month ago||Year ago|
|WSJ Prime Rate||4.25||4.25||1.75|
|Federal Discount Rate||1.75||1.75||1.00|
|Fed Funds Rate (Current target rate 1.00-1.25)||1.25||1.25||0.50|
|11th District Cost of Funds||0.648||0.645||0.691|
What’s included? 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 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 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. 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.