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.

  1. Purchase Rate

    The purchase rate is the interest rate applied to purchases made ...
  2. Bank Rate

    The interest rate at which a nation's central bank lends money ...
  3. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository ...
  4. Interest Rate

    Interest rate is the amount charged, expressed as a percentage ...
  5. Reference Rate

    An interest rate benchmark upon which a floating-rate security ...
  6. Credit Card Arbitrage

    Borrowing money at a low interest rate from a credit card then ...
Related Articles
  1. Personal Finance

    Fed Hike Is A Costly One For Credit Card Borrowers

    Banks have responded to the Federal Reserve's decision to increase interest rates by hiking their prime rates.
  2. Personal Finance

    Everything You Need To Know About Credit Card Rates

    Understanding credit card rates will help you choose the right credit card, and avoid any unpleasant surprises.
  3. Insights

    The Impact of a Fed Interest Rate Hike

    The Federal Reserve recently raised benchmark interest rates. With much attention on the Fed's policy, here's what happens when the Fed hikes rates.
  4. Investing

    Amazon Prime Offers Discounts for Debit Card Use

    The company is saving on credit card fees and refunding some of the savings to customers.
  5. Investing

    Amazon Prime's Growth is Slowing: Morgan Stanley

    Based on a survey of 1,000 US consumers, the Wall Street firm says Prime's growth may be slowing.
  6. Investing

    Amazon Prime Day Breaks Records

    Prime Day event was a huge success, becoming the biggest sales day ever for the ecommerce giant.
  7. Personal Finance

    The Role of a Prime Broker

    Understand the role of a prime brokerage, and learn about the services investment banks provide for hedge funds while in the role of being a prime broker.
  1. Is the prime rate in the US different from the federal funds rate?

    Learn how the federal funds rate affects fluctuations in the prime rate and how following your bank's prime rate can help ... Read Answer >>
  2. What should ordinary borrowers know about the prime rate?

    Learn more about how prime rates are used in consumer lending and how consumers may obtain better interest rates at or near ... Read Answer >>
  3. How high has the prime rate ever gotten?

    Discover the highest value of the prime rate in United States' history and understand the assumptions and calculations that ... Read Answer >>
  4. What are the most important interest rates?

    Learn about the most important interest rates in the economy; the Federal funds rate and discount rate are set by the Federal ... Read Answer >>
Trading Center