Prime Rate definition
The best rate is the basic lending rate that a bank lends to the most important or creditworthy customers, which is usually a premium to the average customer.
In general, the best rate is higher than the interbank offer. In the U.S., the best rate is about 3% higher than the federal funds rate, which means interbank interest. The most common in the United States is the Wall Street Journal’s best annual interest rate published by the Wall Street Journal.
Prime Rates and Variable Interest Rates
In the case of variable interest rates, such as those used on certain credit cards, the card’s interest rate may be expressed as prime plus a set percentage. This means that the rate rises and falls with prime as the underlying base rate but will always remain a fixed percentage greater than prime.
Prime Rate and Best-Qualified Customers
Generally, the prime rate is reserved for only the most qualified customers—those who pose the least amount of default risk. Prime rates may not be available to individual borrowers as often as to larger entities, such as corporations and particularly stable businesses.
Even if the prime rate is set at a particular percentage, say 5%, a lender still may offer rates below 5% to well-qualified customers. The prime rate is used as a benchmark only, and though it is likely to be the lowest announced rate available, it should not be considered as a mandatory minimum.Compete with thousands of traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you’re ready to enter the real market, you’ve had the practice you need.