Prime Rate in many countries is the term to a reference interest rate used by banks.
Originally the term would indicate the rate of interest at which banks lent to
their best customers. However, that is no longer the case. Often you
will hear variable interest rates are expressed as a percentage above or below prime rate.
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To calculate the Prime Rate in the US, it
is usually 300 basis points ( 3% points) above the federal funds rate.
The fed fund rate is the interest rate that banks charge to other banks for overnight loans made to fulfill reserve funding requirements.
Today, the federal funds rate plus a small increment is often used for lending to the most creditworthy borrowers. |
