Determine the base lending rate based on federal benchmarks.
Calculated Prime Rate
0.00%
What is the Prime Rate?
The Prime Rate is the foundational interest rate that commercial banks charge their most creditworthy corporate customers. While it is not set by the government, it is directly influenced by the Federal Open Market Committee (FOMC) through the Federal Funds Rate.
In the United States, the Wall Street Journal (WSJ) publishes the consensus prime rate, which is traditionally calculated as the Federal Funds Target Rate (upper bound) plus a 3% spread. For example, if the Fed sets the target rate at 5.25% – 5.50%, the Prime Rate is typically 8.50%.
The Formula for Calculation
The standard logic for determining the prime rate is straightforward:
Prime Rate = Federal Funds Target Rate (Upper) + 3.00%
Realistic Example:
If the Federal Reserve increases the target range to 4.75% – 5.00%, the "Upper Bound" is 5.00%.
Calculation: 5.00% + 3.00% = 8.00% Prime Rate.
Why the Prime Rate Matters
Even if you are not a major corporation, the prime rate affects your personal finances because it serves as the "index" for many variable-rate products, including:
Credit Cards: Most cards have an APR defined as "Prime + [Margin]".
HELOCs: Home Equity Lines of Credit usually adjust immediately when the prime rate changes.
Small Business Loans: Many SBA loans are tied directly to this benchmark.
Adjustable-Rate Mortgages (ARMs): Certain ARMs use the prime rate to calculate new monthly payments.
function calculatePrimeRate() {
var fedRateInput = document.getElementById('fedFundsRate').value;
var marginInput = document.getElementById('bankMargin').value;
var resultBox = document.getElementById('primeResultBox');
var primeDisplay = document.getElementById('primeValue');
var explanationDisplay = document.getElementById('primeExplanation');
var fedRate = parseFloat(fedRateInput);
var margin = parseFloat(marginInput);
if (isNaN(fedRate) || fedRate < 0) {
alert("Please enter a valid Federal Funds Rate.");
return;
}
if (isNaN(margin)) {
margin = 0;
}
var primeRate = fedRate + margin;
// Update Display
primeDisplay.innerHTML = primeRate.toFixed(2) + "%";
explanationDisplay.innerHTML = "Calculated using a " + fedRate.toFixed(2) + "% Fed Rate and a " + margin.toFixed(2) + "% margin.";
resultBox.style.display = 'block';
}