Prime interest rate is a financial term used by the banks in countries like U.S. and Canada. It is the amount of rate of interest issued by the banks to its credit worthy customers who has high credibility. Since recent times, variable interest rates are expressed above or below the prime interest rate. The prime rate is adjusted by banks in the U.S and is calculated based upon federal funds rate. With the increase of the federal funds rate, the prime interest rate also increases. It is also known as reference rate.

The Wall Street journal considers this as the best rate of interest on loans for corporate loans. The reference rate is the earning received by the banks on the amount of money given for investing without any security. The margins which will affect the cost in lending are also included in the interest rate. The federal fund rates and discount rates affect the margin costs. Availability of funds and demand of credit can also vary with the margin costs. Change in reference rate of one bank will lead to more business for that bank since there is competition among the major banks, the others will follow the pattern soon.

The banks in the States consider prime interest rate to be the baseline that it can offer to their credit worthy customers. It is made use in determining loans of any type from housing loans to auto loans. The fluctuation in prime rate affects people with less credibility. It printed on the Wall Street Journal daily in order to give the readers knowledge of what the lending rate is at a certain time.

It is the FOMC that meets almost 8 times a year and decides on what changes they should bring about to the prime interest rate. The latest prime rate is 3.25% which was fixed on December 16 2008. The FOM has declared that the federal fund target will be reduced to 0% to .25%. So this decision has made it a point not to increase it from 3.25%. There is no time limit as to get any change in the prime interest rate.

The prime interest rate history started with 1.75% in the 1940s. There was once a period in the history of United State's when the prime interest rate reached a top of 21.5%. It is the all time high it has ever reached. The prime interest rate history shows that the rate that began from1.75 in the 1940's did go up and only once did it lowered back. From the high point of prime interest rate, the prime interest rate history shows that it didn't climb up but steadily went on decreasing. The median rate of prime rate is 8.75 for the entire prime interest rate history. The prime rate is almost similar with every bank and in case if someone is having a difference, it will be adjusted soon. The rate is adjusted in correlation with that of federal funds.