Prime Rate: What It Is, Who Sets It, and How It Changes

The prime rate is the base interest rate that US banks post for lending and use as the starting point for many variable-rate loans. Credit cards, home equity lines of credit and small-business lines are often priced as "prime plus a margin." As of September 22, 2026, the prime rate is 7.00%, per the Federal Reserve's H.15 release. The largest banks raised it from 6.75% on September 17, the day after the Federal Reserve raised its policy rate by a quarter point.

Banks set the prime rate, not the Fed, but by a long-standing convention they set it 3 percentage points above the top of the Fed's federal funds target range. That is why prime moves the day after almost every Fed decision. This page covers what the prime rate means, who determines it, how changes reach your loans, what does not change, and how prime has moved since the 1930s. It is general information, not advice about any particular loan.

What the Prime Rate Is

In its simplest definition, the prime rate of interest is a bank's published base lending rate. Historically it was described as the rate banks charged their most creditworthy business customers on short-term loans. That description is now mostly history. Large companies usually borrow at rates tied to market benchmarks such as SOFR, often below prime. Prime today works mainly as a reference rate: a public number that other loan rates are built on.

The Federal Reserve's own FAQ on the prime rate puts it this way: the prime rate is "an interest rate determined by individual banks" and "is often used as a reference rate (also called the base rate) for many types of loans, including loans to small businesses and credit card loans."

That reference role is why prime matters to people who will never be offered prime itself. A card agreement that says "prime + 14.99%" or a HELOC priced at "prime + 0.50%" ties your rate to prime. When prime moves, your rate moves by the same amount, and the margin stays put. Your credit profile determines the margin; the economy determines prime.

Who Determines the Prime Rate, and Who Calculates It

Each bank sets its own prime rate. There is no law fixing it and no agency that announces it. The Fed says plainly that it "has no direct role in setting the prime rate."

In practice, nearly all large banks post the same number because they follow one formula: the upper bound of the federal funds target range plus 3.00 percentage points. With the Fed's range at 3.75% to 4.00% since September 16, 2026, that gives 4.00 + 3.00 = 7.00%. Daily Federal Reserve data show the 3-point gap over the Fed's target has held, apart from one-day timing differences, since the mid-1990s; before then the spread wandered, from under 1.5 points at times in the late 1980s to 3.5 points in the early 1990s. The target range itself is newer: until December 16, 2008 the Fed set a single federal funds target, and prime was that target plus 3. Since then it has been the top of the range plus 3.

So "who determines the prime rate" has a two-part answer:

• The Federal Open Market Committee sets the federal funds target range at its eight scheduled meetings a year. That is the input.
• Individual banks decide to post a new prime in response, almost always by the same amount and usually the next business day. That is the output.

"Who calculates the prime rate" has a separate answer, because two organizations publish a national figure. The Federal Reserve's H.15 release reports the "rate posted by a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks." The Wall Street Journal publishes its own WSJ Prime Rate, which it defines as the base rate on corporate loans posted by at least 70% of the 10 largest US banks. Many loan agreements name the WSJ figure. Both measure what banks have already posted; neither sets it.

What Is the Current Prime Rate?

The current prime rate is 7.00%, in effect since September 17, 2026. The Federal Open Market Committee raised the federal funds target range by a quarter point to 3.75% to 4.00% on September 16, 2026, in a unanimous 12–0 vote, citing elevated inflation. Major banks, including Bank of America, U.S. Bank, PNC and M&T, announced their new 7.00% prime the same afternoon, effective the next day. It was the first increase in prime since July 2023. Before it, prime had stayed at 6.75% from December 11, 2025.

The next scheduled FOMC meetings are October 27–28 and December 8–9, 2026, per the Fed's meeting calendar. If the Committee changes the target range at either one, expect prime to follow by the same amount the next day. H.15 is updated every weekday afternoon, which makes it the easiest free place to check the current figure.

Understanding Prime Rate Changes: From Fed Decision to Your Bill

Most readers want to know what happens after a prime rate change: when does it reach my card or credit line, and by how much? The chain has five links, and only the first belongs to the Fed.

A few rules govern the later links.

The change is one-for-one. Your agreement fixes the margin, so a 0.25-point prime increase adds exactly 0.25 points to a prime-linked APR. Nothing about your credit changes.

There may be no advance notice. For credit cards and other open-end credit, Regulation Z normally requires 45 days' written notice before a significant change in terms. But 12 CFR 1026.9(c)(2)(v)(C) exempts an increase in a variable rate that follows "an index that is not under the control of the creditor and is available to the general public." Prime qualifies. When prime rises, your APR can rise with no letter.

Timing depends on your billing cycle. Many agreements apply the new index at the start of the next billing cycle, so a September change typically shows up on an October or November statement.

Changes run in both directions. A cut lowers a prime-linked rate just as mechanically as a hike raises it. What banks do with savings rates is a different matter, since most savings accounts and CDs are not indexed to anything; the bank simply posts a rate. The household arithmetic of both directions is covered in the decision guide on prime rate changes.

What Moves With Prime, and What Doesn't

The main point from this table: prime affects variable-rate debt you already have and new loans you are about to take out. It does not affect any rate that was fixed when you signed.

For many households, credit cards are the biggest exposure. The Fed's G.19 consumer credit release put the average card rate at 20.94% on all accounts and 22.15% on accounts charged interest in May 2026, roughly 14 to 15½ points above the 6.75% prime rate then in effect. HELOCs are the second big exposure, usually priced close to prime. Adjustable-rate mortgages are a common point of confusion. Most now reset against SOFR or Treasury yields rather than prime, and fixed-rate mortgages follow the 10-year Treasury, not prime. The site's comparison of ARMs vs fixed-rate mortgages explains how those resets work.

What a Quarter-Point Change Costs: A Worked Example

Consider one household and one small business on September 16, 2026, the day before prime went from 6.75% to 7.00%:

• A $6,000 credit card balance at prime + 14.99%: the APR goes from 21.74% to 21.99%. Extra interest: about $15 a year, or $1.25 a month.
• A $40,000 HELOC balance at prime + 0.50%, interest-only during the draw period: the rate goes from 7.25% to 7.50%, and the monthly interest bill from $241.67 to $250.00. Extra: $8.33 a month, $100 a year.
• A $250,000 business line of credit at prime + 1.50%: the rate goes from 8.25% to 8.50%. Annual interest on a fully drawn line goes from $20,625 to $21,250, $625 a year more.

A single quarter-point move is small for households and noticeable for businesses. The cumulative effect is what matters. From March 2022 to July 2023, prime rose 11 times, from 3.25% to 8.50%. That 5.25-point climb added $2,100 a year of interest to the same $40,000 HELOC and more than $13,000 a year to the $250,000 business line. If you carry a card balance, paying it down beats waiting on the Fed; the credit card payoff calculator shows how much a larger payment saves compared with any plausible rate move.

Prime Rate for Business Borrowers: Lines of Credit and SBA Loans

For small businesses, prime is often the rate itself, not background. Bank lines of credit, equipment lines and many term loans are quoted as prime plus a margin that reflects the company's credit, collateral and relationship with the bank.

The largest government-backed program is tied to it directly. Under the SBA's 7(a) rules, rates are negotiated between borrower and lender but are "subject to SBA maximums, which are pegged to the prime rate or an optional peg rate," per the SBA's 7(a) terms and conditions. For variable-rate loans the maximum spread shrinks as the loan grows:

At a 7.00% prime, the most a lender can charge on a variable 7(a) loan over $350,000 is 10.00%; on a loan of $50,000 or less it is 13.50%. Each prime move shifts every one of those ceilings by the same amount. A business comparing a variable line with a fixed-rate term loan is really comparing the margin plus its own forecast for prime against a fixed number. The entry on revolving loan facilities covers how those lines are structured.

Prime Rate History, 1934 to 2026

An industry-wide prime rate took shape in the 1930s. It stood at 1.5% from the mid-1930s until December 1947, when it rose to 1.75% (dates are approximate in the Fed's historical record). Monthly Fed records begin in 1949 at 2.00%. Prime climbed slowly through the 1950s and 1960s, then sharply during the inflation of the 1970s.

The all-time high came on December 19, 1980, when prime reached 21.50% as the Federal Reserve under Paul Volcker tightened policy to break inflation. The annual average peaked at 18.87% in 1981. Prime then drifted down through the 1980s and 1990s, and by the mid-1990s banks had settled on the fed-funds-plus-3 convention that still holds.

The modern record low is 3.25%, reached on December 16, 2008, when the Fed cut rates to a target range of 0 to 0.25% during the financial crisis. It was the Fed's first target range; until then it had set a single federal funds target. Prime stayed there for seven years, until December 17, 2015. It returned to 3.25% on March 16, 2020, at the start of the pandemic.

The recent cycle has been the most compressed in decades:

Understanding prime rate changes over this history comes back to one point: prime has not moved independently since the mid-1990s. Every change in that table was a Fed decision passed through within a day. To forecast prime, forecast the FOMC.

Prime vs the Fed Funds Rate, SOFR and Other Benchmarks

Federal funds rate. The rate banks charge each other for overnight loans of reserves. The Fed sets a target range, not a single rate. The effective rate was 3.88% on September 22, 2026. Prime sits 3 points above the top of the range.

SOFR. The Secured Overnight Financing Rate, published by the New York Fed, replaced LIBOR for most dollar contracts after June 30, 2023. It moves with the fed funds rate but day by day, whereas prime moves in quarter-point steps. Most ARMs, variable private student loans and large corporate loans now use SOFR. The entry on reference rates compares the main benchmarks.

Treasury yields. These are market-set and forward-looking. The 10-year yield, 4.96% on September 22, 2026, drives fixed mortgage rates and can move in the opposite direction from prime.

To find out which index your own loan uses, check the rate section of your agreement. It names the index and the margin. If it says "prime," everything on this page applies to that loan.

FAQ

Who sets the prime rate?

Individual banks. The Federal Reserve says it "has no direct role in setting the prime rate," but it sets the federal funds target range, and large banks post prime at the top of that range plus 3 percentage points. So each Fed decision effectively determines prime, usually by the next business day.

What is the current prime rate?

7.00%, as reported on the Fed's H.15 release for September 22, 2026. It rose from 6.75% on September 17, 2026, after the FOMC raised its target range to 3.75% to 4.00%. The next scheduled FOMC decisions are October 28 and December 9, 2026.

Does a prime rate change affect my fixed-rate mortgage or car loan?

No. A fixed rate is set for the life of the loan when you sign. Prime changes affect variable-rate balances you already carry, such as credit cards, HELOCs and business lines, plus the pricing of new loans. Fixed mortgage rates follow the 10-year Treasury, not prime.

What was the highest prime rate ever?

21.50%, reached on December 19, 1980, when the Federal Reserve was raising rates sharply to fight double-digit inflation. The lowest in the modern era is 3.25%, which applied from December 2008 to December 2015 and again from March 2020 to March 2022.

Sources

• Federal Reserve, H.15 Selected Interest Rates — bank prime loan rate 7.00%, federal funds effective 3.88%, 10-year Treasury 4.96%, as of September 22, 2026; definition of the bank prime loan series
• Federal Reserve, What is the prime rate, and does the Federal Reserve set the prime rate? — banks set prime; the Fed has no direct role
• Federal Reserve, FOMC statement, September 16, 2026 — target range raised 1/4 point to 3.75–4.00%, 12–0 vote
• Federal Reserve, FOMC statement, December 16, 2008 — the first target range for the federal funds rate, 0 to 1/4 percent
• Federal Reserve Bank of St. Louis, FRED, Federal Funds Target Rate, 1982–2008 and target range upper limit — compared with prime to date the 3-point spread
• Federal Reserve, FOMC meeting calendars — October 27–28 and December 8–9, 2026 meetings
• Federal Reserve, G.19 Consumer Credit — credit card rates 20.94% all accounts, 22.15% accounts assessed interest, May 2026
• CFPB, Regulation Z § 1026.9 — 45-day change-in-terms notice and the variable-rate index exception
• U.S. Small Business Administration, 7(a) loan program terms, conditions and eligibility — maximum variable rates of base rate plus 3.0 to 6.5 points by loan size
• Federal Reserve Bank of St. Louis, FRED, Bank Prime Loan Rate Changes: Historical Dates of Changes and Rates and monthly bank prime loan rate — historical series sourced from the Board of Governors, including the 1.5% rate recorded for 1934–35 and the rise to 1.75% in December 1947 (dates approximate), the December 19, 1980 peak and all change dates
• Bank announcements of prime at 7.00% effective September 17, 2026: PNC Bank, N.A. Changes Prime Rate (September 16, 2026); M&T Bank Increases Prime Rate (September 16, 2026); U.S. Bank Increases Prime Lending Rate to 7.00 Percent (September 16, 2026); Bank of America prime rate information
• Bankrate, Wall Street Journal prime rate — WSJ definition: base rate posted by at least 70% of the 10 largest US banks