What is the prime rate today?

The prime rate is the interest rate major banks offer to their borrowers with the best credit.

Technically, there is no single U.S. prime rate. Banks set their own prime rates, but they're generally all the same and move in lockstep with the Fed's benchmark rate.

The prime rate piggybacks off the federal funds rate, which is one of the Federal Reserve's primary tools for nudging the economy. Banks typically take the federal funds rate and add three percentage points to get their prime rate.

The central bank doesn't exactly set the federal funds rate; it's ultimately decided by market supply-and-demand forces. But the Fed's policymaking panel — called the Federal Open Market Committee, or FOMC — establishes a target for the federal funds rate.

If you have credit cards or a home equity line of credit, you feel the movements in the U.S. prime rate most closely.

Interest rates on those products change in sync with the prime rate. The adjustable rate on a HELOC might be advertised as "prime plus 1%" or "prime plus one," for example.

In similar fashion, a credit card might have an annual percentage rate, or APR, described as "prime plus 11.49%" or "prime plus 9.99%." Due to increases in the prime rate, the interest you pay on loans such as your HELOC and credit card balance will increase as well.

Interest rates on auto loans are often tied to the U.S. prime rate too, and many adjustable-rate mortgages, or ARMs, adjust in tune with the prime rate.

The interest on ARMs is fixed for the first several years, then it moves up or down along with a benchmark interest rate — often the prime rate. A common adjustable-rate mortgage is the 5/1 ARM, with an interest rate that's fixed for five years and can adjust every one year after that.

The interest rates on personal loans and popular fixed-rate mortgages do not dovetail with the prime rate and the federal funds rate, but there is an indirect effect on what borrowers pay.

After the Fed cut its federal funds rate to near zero in 2020 and created a climate for very low interest rates, mortgage rates dropped to historic lows. Rates on personal loans fell too.

But long-term mortgage rates don't always move in the same direction as the prime. For example, 30-year mortgage rates fell from December 2016 to December 2017 — even as the prime rate rose from 3.75% to 4.5%.