Prime rate

Source: Wikipedia, the free encyclopedia.
Prime rates in the US, FRG and the European Union

A prime rate or prime lending rate is an interest rate used by banks, usually the interest rate at which banks lend to customers with good credit. Some variable interest rates may be expressed as a percentage above or below prime rate.[1]: 8 

Use in different banking systems

United States and Canada

Main article: U.S. prime rate
Auto loan interest rate 48 months new autos
  Prime rate
  10 year Treasury bond
  United States Consumer Price Index
  Federal funds rate

Historically, in North American

banking, the prime rate was the actual interest rate, although this is no longer the case. The prime rate varies little among banks and adjustments are generally made by banks at the same time, although this does not happen frequently. As of 26 December 2023 the prime rate was 8.50% in the United States[2] and 7.20% in Canada.[3]

In the United States, the prime rate runs approximately 300

London Interbank Offered Rate. The Federal Open Market Committee
(FOMC) meets eight times per year to set a target for the federal funds rate.

Prior to December 17, 2008, the

Wall Street Journal
followed a policy of changing its published prime rate when 23 out of 30 of the United States' largest banks changed their prime rates. Recognizing that fewer, larger banks now control most banking assets (that is, it is more concentrated), the Journal now publishes a rate reflecting the base rate posted by at least 70% of the top ten banks by assets.

Malaysia

Effective January 2, 2015, the Base Lending Rate (BLR) structure was replaced with a new Base Rate (BR) system. Under BR, which will now serve as the main reference rate for new retail floating rate loans, banks in

Bank Negara, the Malaysian central bank.[4]

Malayan Banking Bhd (Maybank) has set a group-wide base rate at 3.2%, effective Jan 2, 2015. All new retail loans and financing such as mortgages, unit trust loans, share margin financing, personal financing and overdraft facilities which are applied for by individual customers will be based on the base rate.[5] Though certain banks may be setting a higher BR compared to others, they can sometimes offer lower ELR to customers in order to remain competitive.[6] Loans that are already approved and extended prior to January 2, 2015 will still follow the old BLR until the end of the loan tenure.

Uses

The prime rate is used often as an index in calculating rate changes to

student loans. Many credit cards and home equity lines of credit
with variable interest rates have their rate specified as the prime rate (index) plus a fixed value commonly called the spread or margin.

See also

  • FRED (Federal Reserve Economic Data)

References

  1. ^ Thomas, L., Money, Banking and Financial Markets (Mason, OH: Thomson South-Western, 2006), p. 8.
  2. ^ According to data published by The Wall Street Journal Online and the Federal Reserve Board of Governors. "Federal Reserve Statistical Data". Federal Reserve.
  3. ^ According to data published by The Wall Street Journal Online and the Bank of Canada. "Daily Digest- Rates and Statistics- Bank of Canada". Bank of Canada.
  4. iMoney.my
    . Retrieved January 26, 2015.
  5. ^ "Maybank sets base rate at 3.2%". The Sun Daily. January 5, 2015. Retrieved January 26, 2015.
  6. iMoney.my
    . Retrieved January 26, 2015.

External links

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