Prime rate

The benchmark rate U.S. banks charge top commercial customers. Most variable-rate loans — HELOCs, SBA 7(a), credit cards — are priced as Prime plus a margin.

Reviewed May 2026.

Prime rate is set by individual banks but tracks the federal funds rate closely — when the Fed hikes or cuts, banks adjust Prime within days. The Wall Street Journal Prime Rate, calculated from the 10 largest U.S. banks, is the version cited in most loan agreements.

Prime sits roughly 3 percentage points above the upper bound of the Fed Funds target range. So when Fed Funds is 4.25–4.50%, Prime is typically 7.50%. When the Fed cuts 25 basis points, Prime drops 25 basis points within a couple of weeks. The 3-point spread is convention, not a regulatory rule — it can compress in unusual rate environments, but rarely does in practice.

Most variable-rate consumer and small-business products price off Prime: HELOCs at Prime + 0.5–3%, SBA 7(a) loans at Prime + 2.25–2.75%, credit cards at Prime + 10–25%. When Prime moves, your rate moves automatically — no refinancing needed in either direction. The reset date varies by product: HELOCs typically reset on the next statement cycle, credit cards on the next billing period, SBA loans on the contracted reset schedule (usually quarterly).

Some older loan agreements reference 'Prime' without specifying which version. Check the loan note for whether it's WSJ Prime, the lender's own posted prime, or a different index — they can differ by a few basis points. Increasingly, new commercial lines reference SOFR instead of Prime, because SOFR is a daily-observable money-market rate while Prime is bank-set; the economics are similar but the mechanics differ.

PayoffMath angle. On a variable-rate loan tied to Prime, prepayment value depends on the rate path. If Prime is expected to fall, the future interest you save by prepaying today is lower than the calculator's static projection assumes; if Prime is expected to rise, the static projection understates the savings. The /rate-outlook page tracks the path the FOMC currently signals.

Why it matters. Most U.S. consumer variable-rate debt — HELOCs, credit cards, many SBA 7(a) loans — moves with Prime. Knowing where Prime is heading is the closest thing to predicting what next year's interest bill looks like on those balances.

Common mistake. Assuming a Fed rate cut translates into a same-size mortgage rate cut. Prime tracks Fed Funds, but 30-year mortgage rates track the 10-year Treasury, which often barely moves on a Fed announcement. Prime-linked products (HELOCs, cards) react quickly; mortgage rates do not.

Try the heloc payoff calculator → — model what happens to your HELOC payoff date if Prime moves up or down through the cycle.

Worked example

Example: a HELOC at 'WSJ Prime + 1.5%'. Today's Prime is 7.50%, so your HELOC rate is 9.00%. If the Fed cuts 25 basis points and Prime drops to 7.25%, your HELOC rate drops to 8.75% the following statement cycle. No paperwork required. On a $50,000 HELOC balance, that 25-basis-point cut saves roughly $125 in annual interest — small per cut, but the cuts compound across an easing cycle.

See also

Sources and review

Reviewed May 2026. Glossary entries are plain-language definitions, not legal definitions. For account-specific rules, your loan documents control.

Definition by James L. Wu. Plain-language gloss, not a legal definition. For terms that show up in your loan paperwork, the governing language is in your loan documents. See the editorial policy for sourcing.