The prime interest rate is the rate of interest at which commercial banks charge their creditworthy customers who has taken mortgage loan upon themselves. The wall street journal describes this as the best interest rate on loans for corporate uses by majority of the largest banks in the United States. The current prime interest rate allows the banks and other financial institutions to get the appropriate earnings they need in order to cover the risk associated with the lending of loans to borrowers.

The prime interest rate inculcates those amounts which are known as margins which will affect the cost in lending. These margin rates are influenced by federal funds rate and discount rates. They also vary with regard to credit demanding and fund availing of funds. When one of the bank changes their prime interest rate, it will lead to increase in demand for money. Due to the competition among banks, other banks will also follow the suit. All the banks are influenced by the decisions of the FOMC.

The current prime interest rate is one benchmark quality which is used for setting credit cards rate and home equity lines. There has been a misconception that it is the Federal Reserve that changes the prime interest rate. But the truth is that Federal Reserve funds in no way any connection with prime interest rate. It is the rate of interest charged by the banks on the mortgage loans. This rate may slightly vary from banks to bank and will be influenced by Federal Reserve fund making some changes.

The current prime interest rate provided by FOMC is 3.25%. It is calculated keeping in mind various factors. This current prime interest rate was proclaimed on December 16 2008. Since then it has been the same. The FOMC had voted to keep the federal funds rate between 0% and .25%. So the interest rate has not got any change from the last announcement. The FOMC is yet to join for a conference on June 2010 and is expected to announce new rates for short term plans. There is no regular time period for changing the current prime interest rate.

The prime interest rate in U.S is placed above 300 points of the federal fund reserve. The fed fund reserve is the interest charged by one bank on another bank for overnight loans. It is to adjust reserve fulfilling requirement. The prime interest rate is calculated as federal fund rate added with 3%. The economy become slower as the prime interest rate reaches high this increase of prime interest rate leads to the drying up of liquidity. This is why the banks raise prime interest rate when federal fund rate is increased.

The main thing to understand is that only those customers with high credit history will only qualify for the current prime interest rate. Some of those persons who forecasts the change of prime interest rate forecasts that till the end of this year the current prime interest rate of 3.25% will hold on. The current prime interest rate is very important for the society since it influences the liquidity in the financial markets.