What is Prime Rate?

The prime rate (prime) is the interest rate central and often commercial banks charge borrowers with the strongest credit ratings, typically large corporate entities. In the United States, the federal funds rate, the overnight rate banks utilize to lend to each other, is determined by the Federal Reserve. The federal funds rate serves as the basis for the prime rate, while the prime rate serves as the starting point for most retail bank interest rates, including for mortgages, personal loans, and small business loans.