The prime rate is one of the most important numbers in personal finance, yet many borrowers don’t fully understand what it is or how it affects their wallets. Whether you’re carrying a credit card balance, shopping for a personal loan, or considering a home equity line of credit, changes in the prime rate directly influence the interest you pay. Here’s what you need to know to answer common questions about the prime rate and why it matters for your personal finances.
What Is the Prime Rate?
The prime rate, sometimes called the prime lending rate or prime interest rate, is the interest rate that commercial banks charge their most creditworthy customers. Think of it as a benchmark or base rate that financial institutions use as a starting point when setting interest rates on many types of consumer and business lending products.
Most credit cards, home equity lines of credit (HELOCs), adjustable-rate mortgages, and small business loans are priced relative to the prime rate. When you see terms like “prime plus 15%” on a credit card offer, it means your rate will be 15 percentage points above whatever the current prime rate happens to be. So if the prime rate changes, the interest rate on those products changes too.
What Is the Current Prime Rate?
As of February 2026, the current prime rate is 6.75%. This rate was last changed on December 11, 2025, when the Federal Reserve cut the federal funds rate by 0.25 percentage points. The prime rate is published daily by the Wall Street Journal based on a survey of the 30 largest banks in the United States.
How the Prime Rate Has Changed Recently
The prime rate peaked at 8.50% in July 2023 after the Federal Reserve raised the federal funds rate aggressively to combat inflation. Since then, the Fed has cut rates several times, bringing the prime rate down to its current level of 6.75%. Many economists expect additional rate cuts in 2026, though the timing and pace will depend on inflation data, the broader economy, and economic conditions.
Who Sets the Prime Rate?
While it may sound like a government-controlled number, the prime rate is actually set by individual banks. Each bank has the latitude to determine its own prime interest rate. In practice, however, nearly every major bank in the country sets its prime rate at exactly 3 percentage points above the federal funds rate.
The Federal Open Market Committee (FOMC), which is the policy-making board of the Federal Reserve, meets roughly eight times per year to decide whether to raise, lower, or maintain the federal funds rate. This is the rate at which banks lend money to one another overnight. When the FOMC announces a rate change, financial institutions typically adjust their prime rate within one to two business days.
How the Prime Rate Affects Your Finances
The prime rate acts as a reference rate for a wide variety of financial products. Several factors determine the rate you actually pay, including your credit score, loan amount, and the lender’s own pricing factors. Here are some of the most common ways a prime rate change can affect your money and the interest rates you pay.
Credit Cards
Most credit cards have variable interest rates that are directly tied to the prime rate. When the prime rate goes up, your credit card APR in turn goes up too, which means higher monthly credit card bills if you carry a balance. When it drops, you’ll pay less in interest charges. If you have significant credit card debt, even a small prime rate change can add up over the course of a year.
Home Equity Lines of Credit (HELOCs)
HELOCs are among the products most sensitive to prime rate changes. These lines of credit almost always carry variable rates set at prime plus a margin. A 0.25% increase in the prime rate translates to a direct 0.25% increase in your HELOC rate.
Personal Loans
While many personal loans carry fixed interest rates, lenders use the prime rate and other benchmark interest rates to determine what fixed rate to offer you. When the prime rate is higher, new fixed-rate personal loans tend to come with higher interest rates as well.
Small Business Loans
Many small business loans, including SBA loans and business lines of credit, are priced relative to the prime rate. A change in the prime rate can significantly affect monthly payments for business owners with variable-rate financing.
Auto Loans
Like personal loans, most auto loans carry fixed rates. However, the overall interest rate environment, which is heavily influenced by the prime rate, determines what rates lenders offer based on current market conditions. When the prime rate drops, auto loan rates tend to follow over time.
Prime Rate Historical Trends
Understanding the long-term history of the prime rate can help you put today’s rate in perspective. The prime lending rate has ranged from a low of 2.00% in the 1940s to a historic high of 21.50% in December 1980, when the Federal Reserve was aggressively fighting double-digit inflation.
Some notable milestones include the period from December 2008 through December 2015, when the prime rate remained at 3.25% for seven consecutive years — the longest stretch of stability in its history. After the COVID-19 pandemic, the rate again dropped to 3.25% in March 2020 before rising sharply as the economy recovered and inflation surged.
You can view the full historical data on the Federal Reserve Bank of St. Louis FRED database.
How to Prepare for Prime Rate Changes
While you can’t control what the Federal Reserve or individual banks decide to do with the prime rate, there are steps you can take to be prepared and protect your finances.
Pay Down Variable-Rate Debt
If you carry balances on credit cards or a HELOC, prioritize paying these down, especially when rates are rising. The less variable-rate debt you hold, the less a prime rate increase will affect you.
Consider Fixed-Rate Alternatives
If you’re concerned about near-term rate increases, consider refinancing variable-rate debt into a fixed-rate, fixed-term product. A fixed-rate debt consolidation loan, for example, locks in your rate regardless of where the prime rate goes.
Monitor Fed Announcements
The Federal Open Market Committee publishes a schedule of its meetings and rate decisions on the Federal Reserve website. Keeping an eye on these announcements can help you anticipate changes and plan accordingly.
Build an Emergency Fund
When rates rise, borrowing becomes more expensive. Having cash reserves means you won’t need to rely on high-interest credit during unexpected expenses. Keep in mind that financial advisors generally recommend keeping three to six months of living expenses in an accessible savings account.
The Bottom Line
The prime rate is a fundamental building block of the U.S. lending system. Set by banks based on the federal funds rate, it serves as a benchmark that determines the interest rates on everything from credit cards to small business loans. Understanding how the prime rate works — and how it affects your money — puts you in a better position to make informed borrowing and saving decisions. By staying aware of rate changes and taking proactive steps to manage your debt, you can minimize the impact of rate fluctuations on your personal finances.
References
- Federal Reserve Board — H.15 Selected Interest Rates
- Federal Reserve — Federal Open Market Committee (FOMC)
- Federal Reserve Bank of St. Louis — Bank Prime Loan Rate (FRED)
- Wall Street Journal — Money Rates
- Federal Reserve — FOMC Meeting Calendars and Information
