The prime rate is the interest rate that banks charge their best credit to corporate customers. The federal funds rate is the starting point for determining the prime rate, and the prime rate is the starting point for determining other interest rates, such as mortgage rates.

The prime rate is the interest rate that commercial banks charge their most creditworthy clients, typically large corporations. It acts as a baseline for other interest rates, influencing rates for mortgages, credit cards, and personal loans. The prime rate is closely tied to the federal funds rate set by central banks, such as the U.S. Federal Reserve. When central banks adjust their rates, the prime rate often follows, either increasing or decreasing. Financial institutions typically add a margin above the prime rate when determining interest rates for other borrowers, especially those with lower creditworthiness, making it a crucial factor in determining borrowing costs.