What Is the Wall Street Journal Prime Rate?
The Wall Street Journal Prime Rate represents the aggregated average of prime rates offered by the 10 largest banks in the United States. These rates are provided to creditworthy customers for short-term loans and are published regularly.
Key Insights
- It reflects the average of 10 major banks’ prime rates, as published by the WSJ.
- It pertains to the lowest interest rates offered to banks’ most reputable customers.
- The WSJ Prime Rate provides a comprehensive overview of banking borrowing rates across the U.S.
Grasping the Wall Street Journal Prime Rate
The prime rate sets the minimal interest rate for banks, usually extended to the most credible clients. Derived from the federal funds overnight rate, it serves as the foundation for many other interest rates. When at least seven of the top 10 banks adjust their prime rate, the WSJ updates the published rate. Noteworthy past rates include a low of 3.25% in December 2008 and a high of 21.50% in December 1980.
Influential Lending Products Linked to the Prime Rate
A bank’s prime rate marks its minimum lending rate for its top customers, and it’s also used as a reference point for various credit products such as mortgages, home equity loans, and car loans. Variable rate products often use the prime rate as their base, to which lenders add a margin according to the borrower’s credit profile.
Borrowers can follow the WSJ Prime Rate for insights into their variable rate loans. An increased WSJ prime typically signals an upward shift in variable interest rates.
Example: Consider a credit card from a leading bank where the interest rate comprises a margin of 15.99% added to the indexed prime rate of 3.25%, leading to a total interest rate of 19.24%. If the prime rate escalates to 4.25%, the interest adjusts to 20.24%.
Related Terms: Federal Reserve, LIBOR, variable credit products, indexed rate, annual percentage rate.
References
- The Wall Street Journal. “Money Rates”.
- Federal Reserve Bank of St. Louis. “Bank Prime Loan Rate Changes: Historical Dates of Changes and Rates”.
Get ready to put your knowledge to the test with this intriguing quiz!
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## What is the Wall Street Journal (WSJ) Prime Rate?
- [ ] The lowest interest rate available to any borrower
- [x] The base rate on corporate loans posted by at least 70% of the nation's largest banks
- [ ] The average interest rate on personal loans
- [ ] The standard savings account interest rate
## How often is the WSJ Prime Rate published?
- [ ] Monthly
- [ ] Daily
- [x] Whenever there is a change in interest rates by the Federal Reserve
- [ ] Weekly
## What is the main use of the WSJ Prime Rate?
- [x] As a benchmark for setting interest rates on various loans
- [ ] Determining property tax rates
- [ ] Establishing savings account rates
- [ ] Calculating stock performance
## Which institution primarily influences changes in the WSJ Prime Rate?
- [x] The Federal Reserve
- [ ] World Bank
- [ ] International Monetary Fund (IMF)
- [ ] Department of Treasury
## How does the WSJ Prime Rate impact consumer borrowing rates?
- [x] It can directly influence rates on credit cards and other consumer loans
- [ ] It has no impact on consumer borrowing rates
- [ ] It determines the value of consumer savings
- [ ] It primarily impacts only mortgage rates
## Why is the WSJ Prime Rate important for corporate borrowers?
- [x] It is a common reference point for setting the interest rates on commercial loans
- [ ] It determines corporate tax rates
- [ ] It affects the exchange rate for corporate transactions
- [ ] It influences stock market valuations
## Which of the following types of loans is most likely to be influenced by changes in the WSJ Prime Rate?
- [x] Variable rate loans
- [ ] Fixed-rate mortgages
- [ ] Government-issued bonds
- [ ] Private equity loans
## How would an increase in the Federal Reserve's rate typically affect the WSJ Prime Rate?
- [x] It would likely increase the WSJ Prime Rate
- [ ] It would decrease the WSJ Prime Rate
- [ ] It would stabilize the WSJ Prime Rate
- [ ] It would have no impact on the WSJ Prime Rate
## Which financial institution uses the WSJ Prime Rate?
- [ ] Insurance companies
- [x] Commercial banks
- [ ] Investment firms
- [ ] Credit unions
## Can the WSJ Prime Rate impact international markets?
- [x] Yes, due to the interconnectedness of global financial systems
- [ ] No, it only has a national impact
- [ ] Only if there is a major economic crisis
- [ ] Only in emerging markets
