DEFINITION of 'Wall Street Journal Prime Rate'

An interest rate that large banks in the United States charge each other for short-term loans and that is published by the Wall Street Journal (WSJ). Also called the United States prime lending rate, the WSJ prime rate reflects the federal funds rate that is influenced by the Federal Reserve; typically, the WSJ prime rate is 3 percentage points higher than the fed funds rate. The WSJ prime rate gets its name from the Wall Street Journal’s practice of polling the 10 largest U.S. banks to see what their prime lending rate is. When 7 or more of the 10 banks polled change their prime rate, the Wall Street Journal publishes a new prime rate.

BREAKING DOWN 'Wall Street Journal Prime Rate'

The WSJ prime rate is the basis of various consumer interest rates, such as home equity loan rates, home equity line of credit rates and credit card rates. If you carry a balance on your credit card, for example, you will want to keep track of the prime rate. Credit cards with variable interest rates usually determine the interest rate you’ll pay based on the prime rate plus an additional percentage that depends on your creditworthiness. You can find this information in your credit card’s terms and conditions. For example, your balance might be subject to a variable annual percentage rate of the prime rate plus 15.99%. This means that if the prime rate is 3.25%, your interest rate will be 19.24%, and if the prime rate increases to 4.25%, your interest rate will increase to 20.24%.

While the WSJ prime rate has held at a low of 3.25% since December 2008, this rate was at 9.5% as recently as the early 2000s. In December 1980, it reached a record high of 21.50%. The rate can remain the same for years, but it can also change as often as every six weeks, because that’s how often the Federal Reserve’s Federal Open Market Committee meets and decides how it wants to influence the fed funds rate on which the WSJ prime rate is based.

The WSJ prime rate is not an interest rate floor. Lenders are free to charge consumers less than the prime rate, and they often do as part of promotions to attract new customers. For example, it’s common to find a 0% introductory APR on a credit card, or a 1.99% APR on a car loan.

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  1. How does the Wall Street Journal prime rate forecast work?

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  2. What should ordinary borrowers know about the prime rate?

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  3. How high has the prime rate ever gotten?

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  4. What's the difference between the prime rate and the discount rate?

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